The bankrupt cryptocurrency exchange FTX is suing the parents of founder Sam Bankman-Fried for allegedly manipulating their relationships to divert millions of dollars out of the company improperly.

Alameda Research LLC, Alameda Research Ltd., FTX Trading Ltd., West Realm Shires, Inc., and West Realm Shires Services Inc. (FTX.US) filed a complaint in Delaware bankruptcy court on Sept. 18 against Allan Bankman and Barbara Fried. Bankman is a Stanford law professor, and Fried is a professor emerita at the same law school.

The complaint alleges that Bankman and Fried exploited their access as insiders at FTX to enrich themselves before the company collapsed in Nov. 2022.

The debtors claim Bankman and Fried knew or should have known FTX was in financial peril but focused on their gains. The suit accuses Bankman of breach of fiduciary duty and aiding and abetting fraud, among other allegations. Fried is charged with unjust enrichment and aiding and abetting fraud regarding her political fundraising activities.

Specifically, the complaint alleges Joseph Bankman and Barbara Fried received a $10 million cash gift, a $16.4 million luxury property in the Bahamas, over $5 million in donations directed to Stanford University, where they work, and other benefits funded by FTX – all while knowing of or ignoring red flags about financial issues and improper conduct at FTX.

Complaints against Allan Joseph Bankman

The complaint claims Allan Joseph Bankman held key advisory roles at FTX where he could have implemented controls or raised issues but instead stayed silent.

Bankman allegedly served as pro bono legal counsel for FTX Trading, Alameda Research, and other affiliates and had broad decision-making authority as a de facto executive. He ignored red flags about improper use of customer funds and other fraudulent practices and helped cover up a 2019 whistleblower complaint alleging misconduct.

Further, the complaint states that Bankman caused over $5.5 million in FTX donations to be directed to his employer, Stanford University, in breach of fiduciary duties. Bankman advised funneling the $10 million gift to avoid taxes, knowing FTX was in financial distress.

Ultimately, Bankman allegedly took a leave of absence from Stanford to focus on FTX as it veered toward insolvency. He reportedly lobbied his son for a massive salary increase during this period. Bankman enriched himself through lavish travel, appearance in FTX commercials, and other benefits before the bankruptcy.

It also alleges Barbara Fried pushed for political donations that violated campaign finance laws.

Fried allegedly served as the primary advisor to Sam Bankman-Fried regarding political contributions. Repeatedly pressured him and other FTX executives to contribute millions of dollars to Mind the Gap, a political action committee Fried co-founded.

Further, the complaint alleges Fried encouraged Bankman-Fried and others to make political donations in a way that violated campaign finance laws, including using straw donors to conceal the source of funds.

The FTX companies are seeking to recover the alleged improper transfers and benefits received by Bankman and Fried. They assert claims for fraudulent transfer, breach of fiduciary duty, unjust enrichment, and other causes of action.