The collapse of FTX, one of the largest crypto exchanges in the world, has raised serious questions about the trustworthiness and regulation of the crypto industry. The latest revelation from the ongoing bankruptcy proceedings is that FTX spent a staggering $400 million to acquire its European branch, which was allegedly a shell company with no real value.
According to a complaint filed by the FTX investors, who are seeking to recover their funds from the exchange, FTX founder and former CEO Sam Bankman-Fried (SBF) and his associates used Alameda Research, a crypto trading firm, to buy Digital Assets DA AG (DAAG), a Swiss company that later became FTX Europe.
The complaint claims that DAAG had limited business and no intellectual property and that SBF overpaid for it by hundreds of millions of dollars.
They alleged that the main motive behind the acquisition was to obtain a European license for FTX by owning a local company. According to the lawsuit, DAAG facilitated FTX’s acquisition of a Cypriot operating license by purchasing another local company for 2 million euro ($2.2 million). This is one of the allegations that the plaintiffs have made against the defendants in their claim for damages.
The complaint also accuses FTX of paying millions of dollars to DAAG, which became FTX Europe, for “IT and consulting services” that were never delivered.
Plaintiffs Are Demanding Full Payment
The plaintiffs are demanding at least $323.5 million from the defendants, who are the co-founders and former top executives of DAAG turned FTX Europe. The complaint argues that each of the transfers in the DAAG deal was made with the intent to defraud the creditors of FTX and that they should be avoided and recovered for the benefit of the FTX bankruptcy estate.
This is not the first time that FTX and its subsidiaries have faced legal troubles since the exchange filed for bankruptcy in November 2022. SBF is awaiting two criminal trials on his role in the alleged crimes, while former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang pleaded guilty to fraud charges in December 2022.
The case of FTX shows how the crypto industry is still plagued by a lack of transparency, and accountability. While crypto enthusiasts may celebrate the innovation and disruption that crypto brings, they should also be aware of the risks and challenges that come with it.
