Alameda Research is seeking to claw back hundreds of millions of dollars paid to individuals and firms, including former UK chancellor George Osborne’s venture capital vehicle, in connection with a deal struck by Sam Bankman-Fried shortly before his FTX cryptocurrency empire entered bankruptcy last year.
Alameda, which is now being run by restructuring expert John Ray, alleged that Bankman-Fried and other insiders misappropriated FTX money to pay for the acquisition of Embed Financial, a start-up broker-dealer that had been touted as a way for the cryptocurrency group to expand its offerings into traditional financial securities.
In two lawsuits filed in Delaware on Wednesday, the company sought to reclaim millions of dollars from former Embed employees who received “retention” payments from the deal, as well as the company’s former shareholders.
Among the defendants are prominent Silicon Valley firms that held stakes in Embed, including Y Combinator, Bain Capital Ventures and 9Yards, where Osborne is a partner alongside his brother Theo.
Alameda’s lawyers want the defendants, including California-based 9Yards, to repay the money they received from the Embed transaction under bankruptcy laws that allow courts to unwind “fraudulent transfers” that are intended to take assets out of reach of creditors.
9Yards, which allegedly received about $46,000 from the transaction, did not immediately respond to a request for comment. None of the defendants are accused of any wrongdoing.
The complaint detailed an elaborate series of transactions involving multiple accounts at now-defunct Signature Bank that Alameda’s lawyers said were intended to create the false impression that the $220mn used to acquire Embed came from the personal accounts of Bankman-Fried and other FTX executives instead of the company.
A lawyer for Bankman-Fried did not immediately respond to a request for comment outside regular office hours.
With faulty technology and net revenue of only $25,000, Embed was worth a small fraction of the amount that Bankman-Fried’s team had agreed to pay for the broker-dealer, Alameda’s lawyers alleged in the filings.
They quoted from internal communications in the weeks before the merger in which Embed employees worried that FTX executives would notice technology flaws that could derail plans to add 10,000 users to a new FTX Stocks product.
“[The Embed platform] can’t really take ANY accounts,” wrote one employee, according to the filings.
Others relayed their previous experience of dealing with Bankman-Fried’s team when FTX became a customer of Embed. The FTX affiliate in question “didn’t do a ton of dd [due diligence]”, said one person, according to the filings. “I get a sense that they are [cowboy emoji] over there[.]”
Additional reporting by George Hammond in San Francisco