Two separate lawsuits were filed by the FTX debtors on May 17 as the firm looks to recoup the funds used in the acquisition of stock-clearing platform Embed last year.
One of the complaints was filed against FTX’s former CEO Sam Bankman-Fried, former Director of Engineering Nishad Singh and co-founder Gary Wang, the listed owners of West Realm Shires, Inc (WRS), otherwise known as FTX.US.
The FTX lawyers allege that the executives paid $248 million to acquire Embed using misappropriated customer funds. They further alleged that the firm performed almost no due diligence in the acquisition, paying a significantly inflated value to close the deal. Under the terms of the deal, Embed founder and CEO Michael Giles personally took home around $157 million.
In a second complaint filed on the same day, the FTX lawyers are seeking to claw back $236.8 million from Giles and other Embed insiders. The lawyers are also looking to retrieve around $6.9 million from Embed shareholders.
“I get a sense that they are [cowboy emoji] over there,” Embed CTO Laurence Beal said to another employee about the lack of WRS’ due diligence on the acquisition, the FTX debtors revealed in the complaint.
Four months after the acquisition, when FTX filed for Chapter 11 bankruptcy, the FTX debtors explored the option of selling Embed to recover assets for creditors. However, no bidder was willing to pay more than $1 million to acquire the company, including Giles himself.
The results of the bidding process “leaves no doubt that the $220 million paid by WRS to acquire Embed was wildly inflated relative to the company’s fair value,” said the FTX debtors.
The complaint also points to an unaudited financial statement for Embed in March 2022, which reflected that the company had a total of $37 million in assets and just $25,000 in total net revenue.