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Friday, April 12, 2024 | Back issues
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FTX investors sue cryptocurrency executive and his celebrity endorsers after going bankrupt

The suit seeks to hold NFL star Trevor Lawrence, Seinfeld actor Larry David and others accountable for promoting the now collapsed crypto exchange platform.

MIAMI (CN) — An Oklahoma attorney filed a lawsuit Tuesday night against Sam Bankman-Fried, the CEO of one of the world's largest cryptocurrency exchanges, along with multiple of his paid celebrity endorsers including Tom Brady and his model ex-wife Gisele Caroline Bündchen and Shaquille O'Neal.

30 year-old Bankman-Fried announced Friday that he was resigning from his company FTX and filing for bankruptcy after failing to raise cash to solve liquidity issues, leaving millions of investors angry and empty handed.

After the company's sudden collapse over just a few days, the money in customer's accounts is now frozen. 

The suit, filed in Florida by Edwin Garrison, accuses FTX of devising a fraudulent scheme to "take advantage of unsophisticated investors from across the country," causing $11 billion in damages.

Garrison further seeks to hold several of the company's famous athlete and entertainment endorsers accountable for convincing customers to purchase cryptocurrency through FTX. Some of the names mentioned in the suit include professional tennis player Naomi Osaka, Boston Red Sox star David Ortiz, the Golden State Warriors NBA team, which promoted the company around San Francisco’s Chase Center, as well as their star player Stephen Curry.

"The Deceptive FTX Platform maintained by the FTX Entities was truly a house of cards, a Ponzi scheme where the FTX Entities shuffled customer funds between their opaque affiliated entities, using new investor funds obtained through investments in the yield-bearing accounts and loans to pay interest to the old ones and to attempt to maintain the appearance of liquidity," wrote Garrison.

The attorney claims that these FTX partners violated federal security laws by failing to perform any "due diligence" prior to their marketing of the company and by not disclosing the full amounts they were being paid in exchange for their promotions.

He points out that the U.S. Securities and Exchange Commission took action against boxing champ Floyd Mayweather and music producer Dj Khaled in 2018 for similar "touting violations" after they failed to disclose payments they received by cryptocurrency issuers to promote Initial Coin Offerings on Twitter.

The SEC also went after Kim Kardashian in October, forcing her to pay $1.26 million in penalties for touting on social media a crypto asset security from EthereumMax without disclosing how much they paid her.

One of the nation's most well known lawyers, David Boies, whose represented Al Gore in the 2000 Supreme Court election dispute as well as some of the victims of Jeffrey Epstein, joined Wednesday to represent Garrison's claims.

Just days before the seemingly stable crypto exchange plummeted, the CEO of rival crypto exchange Binance, sold about $530 million worth of an FTX-issued crypto token after discovering they “mishandled customer funds," causing other large scale investors to withdraw $5 billion in funds.

Bankman-Fried sent out a tweet last week that said, "I'm sorry. That's the biggest thing. I fucked up should have done better."

The SEC as well as the Justice Department and Commodity Futures Trading Commission have launched investigations into FTX to see if the exchange properly safeguarded consumer deposits and relationships with trading affiliates.

On Wednesday, the House Financial Services Committee said they will be holding a hearing on the crash, where Bankman-Fried and other representatives from the company will testify before Congress.

Cryptocurrency surged in popularity during the pandemic with millions of new investors. But as inflation intensified the cost of living and federal interest rates hiked over 2022, many investors have pulled their deposits out of the increasingly volatile industry.

This has caused the value of bitcoin and other tokens to fall significantly to about $17,000 from last year's $68,000.

Other key crypto institutions such as hedge fund Three Arrows Capital, lenders Voyager Digital and Celsius Network and stablecoin issuer Terra Luna, have all also quickly bottomed out over the past year

BlockFi, a New Jersey-based crypto lending platform that received a $250 million bailout from FTX in June, said in a statement last week that they are halting customer withdrawals, “given the lack of clarity on the status" of the platform.

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Categories / Business, Consumers, Entertainment, Financial, Technology

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