Parents of disgraced FTX founder Sam Bankman-Fried are sued by the feds who said they enriched themselves on money stolen from customers

11:34 EST 19 Sep 2023 , updated 15:24 EST 19 Sep 2023

• Joe Bankman and Barbara Fried, both Stanford University law professors, were sued Monday in Delaware by the failed crypto exchange 
• They are accused of taking millions of dollars of gifts from FTX in addition to helping their son mismanage the company's funds 
• Sam Bankman-Fried is currently jailed and awaiting trial for the late 2022 collapse of FTX, which lost clients billions of dollars 

FTX is suing founder Sam Bankman-Fried's parents for allegedly using their access and influence inside the bankrupt crypto exchange to enrich themselves.

In a lawsuit filed Monday in Delaware, Joe Bankman and Barbara Fried, both longtime Stanford Law School professors, are accused of taking at least a $10million cash gift from Sam Bankman-Fried, as well as a $16.4million home in the Bahamas.

Bankman and Fried are also, respectively, accused of helping cover up complaints from the exchange's former attorney, and helping executives evade necessary disclosures for political donations.

The suit claims the couple 'either knew - or ignored bright red flags revealing - that their son, Bankman-Fried, and other FTX Insiders were orchestrating a vast fraudulent scheme.'

Among other transactions, Bankman is accused of funneling some $5.5million to Stanford University. Donations that 'did not benefit the FTX Group, and instead amounted to naked self-dealing by Bankman, who sought to curry favor with and enrich his employer at the FTX Group's expense.'

Their son Sam Bankman-Fried remains under federal indictment and awaits trial on money laundering and fraud charges in connection to FTX's stunning collapse. 

A statement from Bankman and Fried's attorneys denied all allegations against the couple, saying they are 'completely false.'

'This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins. These claims are completely false. Mr. Ray and his massive team of lawyers, who are collectively running up countless millions of dollars in fees while returning relatively little to FTX clients, know better,' said Sean Hecker, counsel to Bankman, and Michael Tremonte, counsel to Fried. 

Stanford University, in a statement, said the institution will be returning the funds 'in their entirety.'

'Stanford received gifts from the FTX Foundation and FTX-related companies largely for pandemic-related prevention and research. We have been in discussions with attorneys for the FTX debtors to recover these gifts and we will be returning the funds in their entirety,' said Dee Mostofi, a university spokesperson.

Last November, FTX filed for bankruptcy protection after a run on deposits brought to light a gaping $8billion hole in the exchange's accounts.

Soon after, Sam Bankman-Fried was charged by federal prosecutors in Manhattan with designing a plot to use customer deposits to finance billions of dollars in venture capital investments, as well as a number of political donations, and luxury real estate purchases.

The 31-year-old's trial is set to begin on October 3. He has pleaded not guilty.

The disastrous collapse of the firm invited scrutiny of Bankman, a tax law professor and formal employee of FTX, who was heavily involved in the company's philanthropic initiatives, while Fried ran a massive political-donor network that SBF and FTX helped finance.

According to the suit, Bankman helped facilitate millions of dollars in loans to top FTX employees and was listed on internal company documents as a manager of the company.

In one set of messages cited in the suit, Bankman complained about receiving a salary of just $200,000, significantly less than the $1million per year he had been expecting.

In January 2022, Bankman complained to the FTX US Head of Administration that he was not receiving the amount to which he believed he was entitled.

He then brought the issue to his son's attention, writing: 'Gee, Sam I don’t know what to say here. This is the first [I] have heard of the 200K a year salary! Putting Barbara on this,' meaning, he was bringing in his wife and SBF's mother to lobby for a massive salary increase.

Two weeks later, SBF gave Bankman and Fried $10million that originated from Alameda Ltd., FTX's sister hedge fund, according to the suit.

Inside of three months, SBF gave the couple a $16.4million Bahamian property paid for with funds provided by FTX Trading.

Though the couple said they 'never believed' that they owned the house, in May 2022, Bankman emailed an FTX executive inviting him and a group of others over to 'celebrate the house you helped us buy/move into.'

The couple also saw $90,000 in expenses for their new home paid for by FTX.

Bankman is further alleged to have helped cover up the allegation from a former FTX lawyer of SBF's businesses had engaged in money laundering and price manipulation.

Instead of looking into the claims, the lawsuit alleges Bankman suggested investigating the attorney.

Fried was never formally an FTX employee, however, she was heavily involved in her son's work, especially as it pertained to making political donations.

According to the suit, she encouraged him to make 'straw donations,' which concealed that the money given was coming from FTX, a strategy devised to 'avoid (if not violate) federal campaign finance disclosure rules.'

Through its incredibly high-stakes and complex bankruptcy process, FTX has been led by John Jay Ray III, an attorney and CEO who specializes in recovering funds from failed companies.

Last month, US District Judge Lewis Kaplant revoked Bankman-Fried's $250 million bail after finding that the former billionaire likely tampered with witnesses at least twice.

Bankman-Fried quickly appealed, arguing he would be unable to properly prepare for his scheduled October 3 trial from behind bars. Earlier this month, the appeals court denied SBF's request to be released from a Brooklyn jail.

Bankman-Fried's lawyers claimed he was being fed a 'flesh diet' and forced to make do with bread, water and peanut butter. 

His legal team also complained that he would be unable to prepare without his correct medication. They  argued that he needed access to computers and medication to prepare properly. 

He was previously granted access to Adderall, after his lawyers told the court that he would take 10mg tablets three to four times a day for his ADHD.

Bankham-Fried was also allowed 'uninterrupted access' access to his Emsam prescription for depression by Kaplan on August 14.

But just eight days later, his attorneys complained he had not been given access to the drugs.

Prosecutors pushed for Bankman-Fried to be jailed after he shared the personal writings of Caroline Ellison, Alameda's former chief executive and his onetime romantic partner, with a New York Times reporter.

Last week, the Times published parts of a 250-page, 15,000-word Twitter thread that Bankman-Fried wrote while under house-arrest but never publishes.

'I’m broke and wearing an ankle monitor and one of the most hated people in the world,' he wrote. 'There will probably never be anything I can do to make my lifetime impact net positive.' 

In repeated mentions, Bankman-Fried blamed Ellison, the CEO of his investment company Alameda Research, for FTX's implosion, claiming she was ill equipped for the role he gave her, and she refused to implement his trading strategies that would have prevented the collapse.

He wrote: 'She continually avoided talking about risk management - dodging my suggestions - until it was too late... Every time that I reached out with suggestions, it just made her feel worse. I’m sure that being exes didn’t help.'

Bankman-Fried and Ellison had a romantic relationship, which ended 'the same way most of my relationships end,' he claimed - 'They want more intimacy and commitment and public visibility than I do, and I feel claustrophobic.'

In a show of what his defense strategy could be like, Bankman-Fried argued Alameda would have stayed solvent if Ellison had agreed to hedge its aggressive trading strategy, as he claims he suggested.

'If Alameda had hedged, it would have remained solvent and prevented the entire unhappy story,' he wrote. 

Ellison, 28, told a New York court last year that she ran Alameda Research and essentially had access to an 'unlimited' amount of FTX client money.

She pleaded guilty to fraud charges, confessing she agreed with Bankman-Fried to give 'materially misleading financial statements' in order hide the arrangement - which she knew was illegal.