FTX Payments for Controversial Celebrity Sponsorships May Be Recovered Through Bankruptcy Process
Financial advisors of the now-bankrupt FTX are trying to reclaim money the controversial cryptocurrency exchange spent on celebrity endorsements and sponsorships leading up to a bankruptcy filing, even as some of those stars face individual lawsuits brought by investors who lost money.
The once-popular cryptocurrency exchange collapsed in late 2022, only a few years after it was launched and widely marketed as the go-to cryptocurrency exchange. The company is now bankrupt, and is embroiled in a far-reaching scandal for allegedly operating as a modern-day Ponzi scheme, causing widespread losses for investors.
FTX lawsuits have been filed against company executives, as well as a wide range of high net worth individuals and companies that promoted the platform, including celebrity endorsers like Shaquille O’Neal, Tom Brady, Steph Curry and others, as well as venture capitalist firms like Sequoia Capital.
Cryptocurrency investors lost billions in digital assets virtually overnight as a result of the FTX scandal, and a growing number of individual lawsuits and class action claims seek to recovery money lost.
FTX’s founder, Sam Bankman-Fried, an outspoken advocate for cryptocurrency, resigned shortly after the company collapsed. However, evidence arose soon after that Bankman-Fried had been freely transferring FTX investors’ money into his Alameda Research investment firm to use for trading, which lost massive amounts of money on risky investments. It is illegal to use investors’ funds this way, and Bankman-Fried has since been arrested and faces numerous criminal charges.
FTX Trading Ltd. filed a statement (PDF) in bankruptcy court late last month, announcing plans to seek to recover millions it paid to celebrity endorsers for promoting the failed platform. The group says it needs to do this to recover enough capitol to pay off debtors as it moves through the bankruptcy process and is asking the Court to approve of the plan.
The statement indicates FTX paid millions to big celebrity names over the years, and now thinks it should get that money back.
According to information revealed in the statement, FTX is hoping to recover nearly $750,000 it paid to Shaquille O’Neal, more than $300,000 it paid tennis star Naomi Osaka, and nearly $270,000 it paid to David Ortis. In addition, the company indicates it paid more than $400,000 to the Golden State Warriors and $250,000 to the Miami heat. It also paid millions to Fortune Media, Formula-1 racing, the Coachella Music Festival, Games Workshop and others, including Major League Baseball; which was paid at least $4.9 million and required umpires to wear FTX patches on their uniforms.
While the advisors are asking the court to reverse those payments, the financial advisors note that they are unlikely to recover all of the money spent.
FTX Investment Lawsuits
Starting in November 2022, investors began filing FTX class action lawsuits against various celebrity endorsers, who they say helped FTX in its scam by making it appear like a lucrative, safe and legal way to invest, when it was actually a Ponzi scheme. The lawsuits claim they did this through deceptive misrepresentations and omissions in their endorsements of the platform.
Given common questions of fact and law raised in cryptocurrency exchange lawsuits currently pending in U.S. District Courts nationwide, the lawsuits have been consolidated for pretrial proceedings and coordinated discovery before U.S. District Judge Michael Moore in the Southern District of Florida.
It is expected that U.S. District Judge Moore will select a small group of representative “bellwether” cases for early trial dates, to help gauge how juries are likely to respond to certain evidence regarding the mounting allegations against the failed cryptocurrency exchange.
While the outcomes of these bellwether trials will not be binding on other plaintiffs, they may help drive the parties toward FTX settlements that would avoid the need for potentially hundreds of eventual individual class action trials to be held.
Plaintiffs say firms like Sequoia, which was the target of a complaint filed in early May, funded FTX’s scheme to defraud its investors, and should be held liable for funds lost by cryptocurrency investors.
The lawsuits indicate the firms, and the endorsers, should have ensured any public statements they made about the company, like how investors’ money would be secure, were actually true. Investors claim FTX’s collapse, and the revelations which appear to show the allegedly illegal actions by Bankman-Fried, prove that financiers and endorsers did not do their due diligence before making public statements in support of the exchange.
CindySeptember 20, 2023 at 11:31 am
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