A lawsuit was filed by the bankrupt crypto exchange FTX against four former employees of a Hong Kong-based affiliate Salameda.
The said affiliate is believed to have been under the direct control of Sam Bankman-Fried, the former CEO of the crypto exchange.
The allegations
Two other companies were named in the lawsuit, along with the four employees, who were Lesley Burgess, Matthew Burgess, Kevin Nguyen, Michael Burgess, and Darren Wong.
It has been alleged that when the future of the FTX crypto exchange became questionable, these employees exploited their personal ties to prioritize withdrawals.
The said withdrawals had taken place in the ‘Preference Period’, which refers to the vital 90 days before the crypto exchange filed for bankruptcy on November 11th, 2022.
US law dictates that the creditors of the company can use the customers who withdraw their crypto assets in the 90-day period before the bankruptcy filing to get the funds back.
Under the bankruptcy code, this is referred to as a ‘clawback’. Estimates indicate that the value of the suspected illicit transfers is around $157.3 million.
After November 7th, 2022, a significant amount of $123 million had been withdrawn. Michael Burgess benefitted from about $73 million from this total.
The lawsuit
According to the filing, these employees had leveraged the personal connections they had with FTX to ensure they would be given priority over other customers.
The accusations against Michael Burgess are very specific because he was not working at FTX at that time.
However, he had enlisted the assistance of other employees at FTX to push out some withdrawal requests that had been pending from his own accounts on the FTX US exchange.
The lawsuit dictates that the final withdrawals had been completed just a few hours before withdrawals had been halted on the FTX exchange on November 8th, 2022.
Post-FTX trades
The filing further disclosed that the defendants had reaped hefty benefits during the months before the exchange’s collapse through crypto trading and those they had managed to withdraw.
They had reportedly departed from the FTX Group between January and November 2022 but had traded actively through entities they owned, such as BDK and 3Twelve.
The trading volumes on a monthly basis were between $100 million and $400 million. The FTX Group had issued a considerable portion of the initial trading capital they used.
The court filing said that the defendants had received fiat currency and digital assets from accounts that were associated with entities part of the FTX Group.
These included almost 13.1 million FTT tokens that were sent to Darren Wong, while Michael Burgess received about 1 million SOL tokens.
Likewise, bonuses given to Wong, Nguyen, and Michael Burgess were almost $4 million. The filing said that these individuals traded these assets to make substantial profits.
For instance, Darren Wong reportedly made $70 million on FTX.com through FTT trades with $30 million earned shortly before the bankruptcy filing.
The co-founder of FTX, Sam Bankman-Fried is currently awaiting his criminal trial, which is scheduled to begin in October.