Bankrupt crypto exchange FTX on Thursday filed a lawsuit in Delaware against several investment firms it was tied to before its collapsed, in an attempt to claw back over $700 million in investments allegedly made with misappropriated FTX funds.
In its filing, FTX claims that founder Sam Bankman-Fried was a "profligate patron" who showered cash on former CAA talent agent and former Hillary Clinton aide Michael Kives, as well as his partner in K5 Global, Bryan Baum. SBF also gave money to incubator and investment firm Mount Olympus Capital and SGN Albany Capital.
Bankman-Fried described Kives, who served as an aide to Clinton when she was a Democratic U.S. senator from New York, and who worked as a Hollywood agent for clients including actor and former Republican California governor Arnold Schwarzenegger and singer Katy Perry, as "probably, the most connected person I've ever met," and "a one-stop shop" for political relationships and celebrity partnerships, according to the complaint. -Reuters
The suit highlights a 2022 event attended by SBF which was hosted by Kives.
"True to Kives’s reputation as a high-profile ‘super-networker,’ the attendees at the dinner party included a former Presidential candidate, top actors and musicians, reality TV stars and multiple billionaires," it reads.
The suit then alleges that FTX's crypto trading arm, Alameda Research, transferred $700 million to Kives, Baum and K5 Global, however they 'constructed the deals as coming from shell companies SGN Albany and Mount Olympus Capital,' according to Cointelegraph.
The transfers were described as being carried out “without receiving equivalent value” and, crucially, as avoidable. In U.S. bankruptcy law, an avoidable transaction is one that can be reversed under the Bankruptcy Code or other laws.
Kives, Baum and SBF also developed close personal ties, with Baum even having his own bedroom in the FTX executives’ Bahamas residence, the suit said. After FTX’s collapse, “Kives and Baum worked behind the scenes with Bankman-Fried on a strategy to find someone to bail out the FTX Group (and to protect their golden goose).” -Cointelegraph
FTX moves to claw back $800 million from K5 Global, Olympus Capital, SGN Albany et al.— FTX 2.0 Coalition (@AFTXcreditor) June 22, 2023
Defendants are further accused of aiding and abetting SBF, dishonest assistance and unjust enrichment. pic.twitter.com/IPcDEtuFxL
K5 Global called the lawsuit "without merit," telling the outlet: "K5 is a Venture Capital firm with over $1 billion in assets under management (apart from any funds from SBF and his affiliates) and has investments in 148 companies. In mid-2022, an affiliate of Sam Bankman-Fried and Alameda bought a third of K5’s general partnership for cash and stock, and ultimately made a $400 million investment in certain funds managed by K5," the spokesperson said, adding "K5 was under the impression — like many others — that SBF was completely legitimate and they were entering into a fair, long-term, and mutually beneficial business relationship. Our belief is that the lawsuit is without merit."
Bankman-Fried authorized investments in K5 projects that enriched Kives and Baum with no payoff for FTX or its customers, who were footing the bill, FTX alleged.
In one poor investment, according to the complaint, a Bankman-Fried-controlled shell company used $214 million in funds from FTX to buy a minority stake in Kendall Jenner's 818 Tequila brand, at a time when the tequila company's assets were valued at just $2.94 million in its filings with the U.S. Securities and Exchange Commission. -Reuters
That said, nine of the counts in the suit concern fund transfers, while Kives and Baum have been personally charged with aiding and abetting breach of fiduciary duty and dishonest assistance. SGN Albany Capital was charged with unjust enrichment.