On Thursday night, the lawyers of disgraced crypto founder Sam Bankman-Fried filed an objection in the bankruptcy proceedings of his crypto exchange, FTX, to retain 56 million shares of Robinhood, currently valued at around $450 million. The shares of Robinhood have become a major point of contention in the Delaware bankruptcy court case. While Bankman-Fried owned that equity, he borrowed hundreds of millions of dollars from FTX's affiliated trading firm, Alameda Research, to purchase it through a separate entity called Emergent Fidelity Technology, of which he owns 90%, along with FTX cofounder Gary Wang.
Different parties have tried to seize the Robinhood shares, including the FTX bankruptcy estate and the crypto lender BlockFi—Bankman-Fried's Emergent had pledged the stock as collateral for more than $600 million in loans that BlockFi provided Alameda ahead of its bankruptcy. The U.S. Department of Justice is also staking a claim: On Jan.
4, U.S. attorney Seth Shapiro told the judge overseeing the FTX bankruptcy that prosecutors are in the process of seizing the shares. In Thursday's objection, Bankman-Fried's lawyers argued that the corporation in control of the Robinhood equity is not a party to the bankruptcy proceedings, as it's not owned by Alameda or any other entity implicated in the bankruptcy.
Emergent had acquired the shares in a separate filing with the Securities and Exchange Commission. The DOJ charged Bankman-Fried with eight counts of federal fraud in December related to the collapse of FTX and Alameda. He pled not guilty, and a trial is set for October.
In their objection, Bankman-Fried's lawyers wrote that the only way for FTX debtors to obtain the shares would be advancing a 'fraudulent transfer claim,' or that the shares were transferred from Alameda to Emergent under suspicious circumstances. As court proceedings continue in both the bankruptcy case and Bankman-Fried's criminal trial, jockeying for the hundreds of millions of dollars' worth of shares will continue, especially as the value of other holdings—such as FTX's proprietary FTT token—has evaporated. Bankman-Fried's lawyers argued that he requires the Robinhood shares to pay for his criminal defense.
Bankman-Fried, whose worth was once valued at $26.5 billion, has stated that he only has $100,000 left in his bank account. Citing case law, the lawyers wrote that a 'financial inability to defend oneself has serious consequences.' The FTX debtors, Bankman-Fried's lawyers continued, only face the possibility of economic loss.Our new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today's executives. Subscribe here.