Law Street Media

FTX, Founder and Celebrity Brand Ambassadors Sued by Investors After Collapse

A finger browsing cryptocurrency prices on a smartphone app.

New york, USA - July 25, 2018: Man checking cryptocarrencies exchange to dollar rate on smartphone display.

A class action filed in Miami, Fl. on Tuesday has accused Sam Bankman-Fried, founder and CEO of the FTX crypto trading platform, FTX and its related entities, ten sports and other celebrities, and the Golden State Warriors of fraud and deceptive advertising. The case concerns the massive meltdown of first Voyager then FTX and its overnight loss of $30 billion in value earlier this month. 

The complaint explains that until its bankruptcy, FTX operated a multi-billion-dollar cryptocurrency investment service available on mobile apps that placed cryptocurrency trade orders on behalf of users like the plaintiff and offered interest bearing cryptocurrency accounts. It was successful since its inception, the complaint says, earning 30-year-old Bankman-Fried billions.

The complaint adds that “[e]veryone involved in the Voyager Bankruptcy Cases thought that the FTX Entities were the deus ex machina come to save the day by bailing out Voyager and paying back at least some of the losses the Voyager customers sustained.”

Yet in early November 2022, crypto publication CoinDesk published a report that called into question the stability of Bankman-Fried’s empire, which consisted of two main parts: the FTX exchange and its FTT token and his trading firm Alameda Research. The report allegedly showed that “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.”

On this news, rival exchange Binance reportedly liquidated $530 million-worth of FTT and customers also raced to pull out. FTX saw an estimated $6 billion in withdrawals over the course of 72 hours, which it struggled to fulfill, the complaint says. Binance cited lack of oversight, mishandling of customer funds, and the possibility of a federal investigation as the reason for its decision to pull back.

Subsequently, FTT’s value plummeted and the Delaware company filed for emergency bankruptcy. The complaint cites a string of tweets by Bankman-Fried apologizing for the disaster and tendering resignation as CEO, as proof of guilt in the monumental collapse.

Calling the platform “truly a house of cards,” the complaint says the FTX entities “shuffled customer funds between their opaque affiliated entities, using new investor funds obtained through investments in the YBAs and loans to pay interest to the old ones and to attempt to maintain the appearance of liquidity.”

The investor plaintiff claims he relied on the company’s as well as the brand ambassador’s representations in making a YBA investment, which was really part of a Ponzi scheme. 

The complaint accuses the brand ambassadors of failing to disclose the “nature, scope, and amount of compensation they personally received in exchange for the promotion” of the FTX platform. Such omissions violate the anti-touting provisions of the federal securities laws, the complaint says. Further, it claims that none of the brand ambassador defendants conducted any due diligence prior to marketing the FTX products to the public.

The class action seeks to represent a nationwide class and a Florida subclass of investors who enrolled in a YBA. It states claims for violation of Florida’s deceptive trade practices law, civil conspiracy, and unjust enrichment.

The brand ambassador defendants are Tom Brady, Gisele Bundchen, Stephen Curry, Golden State Warriors, Shaquille O’Neal, Udonis Haslem, David Ortiz, William Trevor Lawrence, Shohei Ohtani, Naomi Osaka, Larry David, and Kevin O’Leary.

The plaintiff and putative class are represented by The Moskowitz Law Firm PLLC and Boies Schiller Flexner LLP.

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