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FTX Files Lawsuit Against Hedge Funds for Spurious Investment

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In a bid to recover as many assets as possible and potentially even reboot FTX, the bankrupt exchanges’ new leadership has been filing clawback requests from previous business partners and donation recipients.

Clawback requests have also been filed against former executives, including SBF himself, although the amounts subject to possible returns from executives pale in comparison to the amounts requested from other platforms, such as Genesis.

Spurious Investments

Yesterday, FTX’s legal team filed a lawsuit against several hedge funds, including SGN Albany Capital, K5 Global, and Mount Olympus Capital. Entities affiliated with these hedge funds are also named in the document, as well as K5 executives Bryan Baum and Michael Kives.

According to the lawsuit, Sam Bankman-Fried had gone to one of many networking events hosted by the pair of C-suite hotshots. Following this event, SBF invested about $700 million into the funds administered by the defendants.

Although this may seem a cursory amount, considering the amounts the FTX Group regularly invested into various ventures, these were allegedly void of any real meaning.

“Bankman-Fried, Kives and Baum signed a bare-bones term sheet providing that “Sam Bankman-Fried or a related entity” would give each of Kives and Baum $125 million personally and would invest billions of dollars in K5 Global and affiliated entities […]. The Term Sheet was little more than a cursory list of investment ideas, and repeatedly stated that the actual “mechanics” of these very substantial investments would be later worked out “in the long form documents.” Though the parties had not agreed on any final terms, funds were sent the day after signing.”

Aside from charges of unjust enrichment brought against the hedge funds themselves, Kives and Baum have been charged with aiding and abetting breaches of fiduciary duty in “one of the biggest financial frauds in history.”

FTX moves to claw back $800 million from K5 Global, Olympus Capital, SGN Albany et al. Defendants are further accused of aiding and abetting SBF, dishonest assistance and unjust enrichment.

Keeping New Friends Close

The court case also states that an internal FTX note was circulated shortly after the meeting, with SBF “gushing” over the connections available through the pair. SBF seemed eager to “work with them on Democratic politics” and “maybe invest in them or some stuff, idk.”

The relationship went on for a while, with huge sums billed and invested between firms – many of which seemed inflated or off, even to FTX’s notoriously lax accountants.

Furthermore, once it became clear that FTX was about to go under, “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).”

According to the document, the pair had reached out to their network of high-fliers to find potential bailouts for SBF. One unnamed investor was allegedly fine with spending over $9 billion to rescue FTX. However, the deal fell through when the unnamed investor took a peek at the bankrupt crypto empires’ balance sheet.

If the lawsuit is successful, FTX may be able to recoup up to $700 million. However, the real amount invested with Kives’ and Baum’s networks is reportedly much larger.

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