Sam Bankman-Fried Lawsuit Might Be Coming As VCs Look to Recoup Losses

Sam Bankman-Fried lawsuit in the air: The FTX collapse marks one of the largest disasters for crypto, and it came at a time when the industry was already hurting. However, beyond crypto, it is a major loss of wealth for a large number of people, including Sam Bankman-Fried himself and the investors who put their faith in FTX. Those same investors are now considering legal action, hoping to recoup some of the losses brought upon by Bankman-Fried and FTX.

Details put things in a bad light: After the collapse of FTX, more and more information has come out, and it does not make FTX or Bankman-Fried look good. Because of that, investors and venture capitalists are considering a fraud lawsuit. The Bankman-Fried lawsuit would include those who invested heavily in FTX.

• Binance CEO Changpeng “CZ” Zhao spoke out on Twitter about an industry recovery fund, which would help strong projects facing a liquidity crisis. When questioned about whether FTX would qualify, he said, “liars or fraud never qualify as strong projects.”

Bankruptcy filing: The Bankman-Fried lawsuit sought by VCs would only make matters worse for the crumbling crypto exchange as it proceeds with its bankruptcy filing. FTX filed for Chapter 11 bankruptcy protection in the US, along with 130 affiliate companies.

• The new CEO at FTX, John J. Ray III, said that it would give FTX Group an opportunity to “assess its situation and develop a process to maximize recoveries for stakeholders.”

Missing funds: There have also been reports of more than $1 billion in funds vanishing from FTX. Additionally, there are suspicions that Bankman-Fried moved $10 billion from FTX to his trading company Alameda Research. A large portion of the transferred funds has since disappeared, with around $1 billion to $2 billion missing.

The missing funds might become important in the Bankman-Fried lawsuit as VCs look for funds to make up for their losses.

• The transfer of funds was already known, but the missing funds was a new discovery, which was reportedly revealed in records Bankman-Fried revealed after the collapse.
• According to Bankman-Fried, the funds were not transferred secretly. Instead, he said, “We had confusing internal labeling and misread it.” He did not elaborate further, and when questioned about the missing funds, he did not provide additional information.

Who lost the most: Among those that lost money due to FTX’s collapse were a sovereign wealth fund, a public pension fund, and multiple venture capital firms. In total, the groups invested $2 billion in FTX. The Bankman-Fried lawsuit will focus on getting that lost money back, with several investment firms marking their stakes to zero.

• Paradigm and Sequoia Capital lost the most among investors. Paradigm lost $278 million, while Sequoia Capital lost $214 million, though they are not the only ones. Others include SoftBank and Tiger Global, with many big players having a stake in a company that seemed dependable a few weeks ago.
• It has been a bad year for crypto billionaires, who have lost more than $96 billion this year. Moreover, that does not include Sam Bankman-Fried’s massive loss of wealth, which would take the number up another level.

Bankman-Fried’s net worth: The Bankman-Fried lawsuit might come, but whether VCs will be able to recoup their losses is unknown. Earlier this year, Bankman-Fried had a net worth of nearly $26 billion. That number dropped to $16 billion when the FTX trouble began. By the time FTX declared bankruptcy, that number dropped even lower, with Bankman-Fried losing his billionaire status and having his assets reduced to zero.

Other legal trouble: Customers and investors will be looking to bring civil lawsuits, like the VC-led Bankman-Fried lawsuit. However, the Justice Department is also reported to be investigating. While there are obstacles to the proceedings, such as whether there was intent to deceive, there is the potential for jail time if the findings support a criminal case.