Now that Sam Bankman-Fried has been found guilty of defrauding FTX investors of $10 billion, attention is turning to a lawsuit pinning blame not just on the onetime billionaire but also on the celebrities who hawked FTX crypto, Bloomberg reports.
The sweeping class-action suit, filed in Miami federal court, wants to claw back funds from deep-pocketed celebrities and the bankers, accountants and lawyers who legitimized FTX and its hedge fund, Alameda Research.
The flashy ads in question — featuring football star Tom Brady and his supermodel wife Gisele Bundchen, comedian Larry David, and basketball star Shaquille O’Neal — were shown to the jury at the very start of the monthlong trial against Bankman-Fried. It’s entirely conceivable the ads, along with pictures of Bankman-Fried socializing with the stars, made the biggest impressions on a jury tasked with enduring arcane details on cryptocurrencies and blockchain.
Hoping to attract hundreds of thousands of investors to join the class action, the lawsuit hinges on the premise that the celebrities and professionals associated with FTX would have seen the red flags had they done their due diligence.
Columbia Law School Professor Daniel Richman thinks the conviction on seven counts of fraud and conspiracy against the 31-year-old onetime billionaire and crypto wunderkind, will add fuel to their case on the shirttails of the FTX verdict — which Manhattan’s top federal prosecutor Damian Willians dubbed “one of the biggest financial frauds in American history.”
The class-action attorneys “are going to benefit mightily from the investigative work of the government,” Richman believes. “It’s not going to definitively prove their case, but helps them considerably in shedding light on what was going on with FTX and Alameda.”
If history is any judge — looking at the billions in settlements in the wake of the collapses of Enron and WorldCom — the case has a good chance.
Lawyers for the celebrities who endorsed FTX have countered the claims have no basis because the ads and the sponsorships did not specifically ask or encourage viewers to deposit money with FTX. Also, the celebrities had nothing to do with the “misappropriation and mismanagement” of FTX funds.
In addition, since many of these endorsers invested their own money with FTX or were compensated in its cryptocurrency, they, too, were “victims,” attorneys reason.
As for the professional firms — including investment firms Sequoia Capital and SoftBank, accounting firm Prager Metis, and law firm Fenwick & West — they have denied enabling Bankman-Fried’s deceit.
Regardless of the outcome, the case is expected to take years, just as investor suits against ponzi schemer Bernard Madoff and Allen Stanford did.
“The Madoff case, in particular, was unprecedented in its scope and complexity, and the civil litigation surrounding it has been extensive and ongoing for many years,” says Braden Perry, a partner with Kennyhertz Perry and a former federal regulatory enforcement lawyer.
“FTX’s complexity could exceed Madoff’s due to the multiple jurisdictions and lack of regulatory structure involved,” Perry adds, alluding to what some say is a lack of proper oversight of cryptocurrency to this day.
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