NEW YORK, July 13 (Reuters) – Bankrupt crypto exchange FTX sued insiders at FTX Europe AG late Wednesday, seeking to recover $323 million that FTX had invested in an ill-fated expansion into European crypto markets.
FTX’s acquisition of Zurich, Switzerland-based Digital Assets DA AG, now known as FTX Europe, was one of many “dubious investments” made with FTX customer funds and primarily meant to enrich FTX founder Sam Bankman-Fried and his associates, according to a complaint filed in Delaware bankruptcy court.
After FTX filed for bankruptcy in November, it sought to sell FTX Europe, only to conclude that no buyer would offer meaningful value for the company, according to FTX.
FTX acquired Digital Assets for nearly $400 million in three transactions in 2020 and 2021, hoping to obtain regulatory approvals and expand into European markets. At Bankman-Fried’s direction, FTX moved forward with the “massive overpayment” despite knowing that the company had little more than a business plan and was “not up and running yet,” according to FTX’s complaint.
The lawsuit seeks to recover payments made to Patrick Gruhn and Robin Matzke, who co-founded Digital Assets and stayed on to lead FTX Europe after FTX acquired their company, and from Brandon Williams, a managing director at Cosima Capital who helped facilitate the acquisition. The lawsuit also targets Lorem Ipsum Holding UG, a German holding company owned by Matzke.
Gruhn, Matzke and Williams could not immediately be reached for comment Thursday. Cosima Capital did not immediately respond to a request for comment.
FTX alleges that Bankman-Fried had personal ties with Gruhn and Williams and a “history of doing favors for” them before the acquisition. Gruhn spent FTX funds on a “lavish lifestyle,” including spending $13 million on seven properties in Oregon, buying an armored Cadillac Escalade with cash, and hiring several servants including a butler and a full-time chef, according to FTX.
FTX has filed similar lawsuits seeking to claw back money from a former top FTX lawyer, the founders of stock trading platform Embed, other bankrupt crypto companies, and K5, an investment firm with political and celebrity connections.
FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange. Prosecutors have charged Bankman-Fried, 31, with stealing billions of dollars in FTX customer funds to cover losses at its affiliated hedge fund Alameda Research.
Bankman-Fried denies the allegations and has pleaded not guilty. Other FTX insiders have pleaded guilty to federal criminal charges.
The case is FTX Trading Ltd v. Lorem Ipsum UG et al, U.S. Bankruptcy Court for the District of Delaware, No. 23-ap-50437.
For FTX: Steven Holley, Stephen Ehrenberg, Brian Glueckstein and Christopher Dunne of Sullivan & Cromwell LLP.
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Reporting by Dietrich Knauth
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