Investors have decided to sue FTX founder Sam Bankman-Fried as well as a ton of celebrities who promoted the crypto platform, some of the names include, Larry David, Tom Brady and Stephen Curry. Other celebrities who have been named include Gisele Bundchen, Shaquille O’Neal, and Naomi Osaka. The class action alleges that FTX was a “Ponzi scheme” that would move around customer funds between its affiliated entities. It goes on to accuse FTX and the company’s endorsers for promoting unregistered securities.
The complaint reads, “Part of the scheme employed by the FTX Entities involved utilizing some of the biggest names in sports and entertainment — like these Defendants — to raise funds and drive American consumers to invest.”
FTX and their affiliated crypto trading firm Alameda Research filed for Chapter 11 bankruptcy on Friday after being unable to raise sufficient funds to be able to survive a collapse after traders withdrew billions from the exchange. The company was valued at $32 billion back in January, which led to investments from investment firms and celebrities. The Federal Trade Commission and Department of Justice are investigating FTX for potential criminal activity and securities violations.
The lawsuit says that FTX’s business model is a “house of cards” that preyed on unsophisticated investors through the use of celebrity endorsements. It also claims that FTX used new funds and loans to pay off their old investments in order to appear to have liquidity. Bankman-Fried’s scheme made use of both FTX and trading firm Alameda Research, as Alameda’s balance sheet had crypto token issued by FTX that grants holders a discount on trading fees in their own marketplace.
The complaint continues to read, “While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto, The situation adds to evidence that the ties between FTX and Alameda are unusually close.”
When Binance CEO Changpeng Zhao found out this information he decided to take out his roughly $530 million in an FTX token which caused customers to do the same, resulting in an exchange that the company couldn’t fulfill, the suit claims.
The FTC says that consumers have been scammed out of over $80 million dollars since October, primarily due to celebrity endorsements.
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