- FTX founder Sam Bankman-Fried has been named in an $11 billion proposed class-action lawsuit that alleges the sale of unregistered securities and fraud.
- Numerous celebrity endorsers of FTX and its tokens also have been named as defendants in the lawsuit.
- The collapse of FTX has had a negative ripple effect on several digital currency platforms now facing liquidity crises.
Lawsuit Alleges The Sale of Unregistered Securities
Plaintiffs in the proposed class action claim that FTX yield-bearing accounts were illegally sold in the U.S. as unregistered securities. The lawsuit, filed by an Oklahoma resident Edwin Garrison who had an FTX yield-bearing account that he funded with crypto assets to earn interest, alleges that when the crypto exchange faltered on liquidity concerns, U.S. investors suffered a total of $11 billion in damage.
Among Garrison's attorneys are Adam Moskowitz of Coral Gables, Florida, and David Boies of Armonk, New York, the high-profile lawyer who led the U.S. government's case against Microsoft in the late 1990s. Recently, both attorneys teamed up in a class action against Voyager, another crypto exchange that went bankrupt.
According to reports, Bankman-Fried could be extradited from the Bahamas to the U.S. to answer questions about his involvement in the collapse of FTX.
Allegations of Civil Conspiracy
According to the court filing, FTX and the other listed defendants entered into a conspiracy to commit fraud. The lawsuit seeks damages from Bankman-Fried and celebrity endorsers who are professional athletes, actors, and other notables: Tom Brady, Gisele Bundchen, Kevin O’Leary, Udonis Haslem, David Ortiz, Steph Curry, Shaquille O’Neal, Trevor Lawrence, Shohei Ohtani, Larry David, and Naomi Osaka in connection with at least $1 billion in customer funds disappearing from the exchange. Also named is the Golden State Warriors NBA basketball team.
“FTX’s fraudulent scheme was designed to take advantage of unsophisticated investors from across the country, who utilize mobile apps to make their investments,” Edwin Garrison, the FTX investor who filed the lawsuit, said in the complaint filed Nov. 15.
Garrison’s legal teams claim to have located “many incriminating FTX emails and texts.” To promote FTX's unregistered securities, Garrison alleges that celebrity endorsers were used to funnel investors into a Ponzi scheme.
House Lawmakers to Probe FTX
In related news, the U.S. House Financial Services Committee said it will hold a hearing in December 2022 on the FTX collapse. The U.S. House, in a statement released Nov. 16, is seeking answers about the platform’s financial ruin. The hearing will call some of the major players involved in the fiasco.
The Bottom Line
As FTX continues its downward spiral, shockwaves are spreading throughout the crypto community. A multibillion-dollar class-action lawsuit alleging the illegal sale of unregistered securities may push lawmakers to take a definitive line on the regulation of cryptocurrencies.