Bankrupt crypto exchange FTX has filed a lawsuit against four former employees of Salameda, a Hong-Kong-based affiliate believed to have been under the direct control of the crypto exchange's former CEO, Sam Bankman-Fried.
Along with two related companies, the named individuals—Michael Burgess, Matthew Burgess, Lesley Burgess, Kevin Nguyen, and Darren Wong—are alleged to have exploited their personal ties to prioritize their asset withdrawals from FTX when the exchange’s future became questionable.
Those withdrawals took place during the crucial 90-day period before FTX's bankruptcy filing on November 11, known as the 'Preference Period.'
According to U.S. law, customers who withdrew their crypto assets in the 90 days before FTX filed for bankruptcy could be sued by the company’s creditors to get the money back. This is called a ‘clawback’ under the bankruptcy code.
The total value of these suspected illicit transfers is estimated at $157.3 million, with a significant sum of over $123 million being withdrawn after November 7, 2022.
A notable portion of this, around $73 million, allegedly benefited Michael Burgess.
“They leveraged their connections to FTX Group personnel to ensure that they would be prioritized over other customers,” the filing says.
Matthew Burgess is specifically accused, as he had already left FTX Group, to have “enlisted other FTX Group employees to ‘push out’ certain pending withdrawal requests” from his own FTX US exchange accounts, “while misrepresenting the account to be his own.”
The final withdrawals were completed just hours before the FTX.com exchange halted withdrawals on November 8, 2022, according to the lawsuit.
Post-FTX trades
The filing also details the hefty benefits that the defendants made from trading crypto during the months before the FTX collapse, and that they managed to withdraw.
From January to November 2022, after reportedly departing from the FTX Group, they actively traded through their owned entities including 3Twelve and BDK. Monthly trading volumes ranged from $100 million to $400 million.
A notable portion of their trading capital apparently originated from the FTX Group. “Defendants received substantial transfers of digital assets and fiat currency from exchange accounts associated with FTX Group entities, including approximately 13.1 million FTT sent to Darren Wong, more than 1 million SOL sent to Michael Burgess, and nearly $4 million USD for ‘bonuses’ between Michael Burgess, Nguyen, and Wong,” the court filing says.
The filing also alleges that they made substantial profits by trading those assets. Darren Wong, for instance, is said to have gained over $70 million from FTT trades on FTX.com, with about $30 million earned shortly before FTX's bankruptcy petition.
Sam Bankman-Fried is currently detained awaiting trial, which is set to commence on October 3. An appeals court dismissed his bid for release prior to the trial proceedings on Thursday.
Decrypt has reached out to FTX for comment and will update this article should the company respond.