Sam Bankman-Fried and FTX backers face more class actions

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Disgraced former FTX CEO Sam Bankman-Fried was hit with two more class action lawsuits, along with several prominent backers and endorsers, chief amongst them the Golden State Warriors.

The investor suits were filed in the Florida and California federal courts. Both concern deceitful conduct in promoting FTX’s yield-bearing accounts (YBAs), which the lawsuits say amounts to an unregistered security.

The Florida suit is brought by U.K.-based ‘tech investor’ Sunil Kavuri, who claims that he enrolled in a yield-bearing account (YBA) after being exposed to “misrepresentations and omissions regarding the deceptive FTX platform” and that the defendants “aggressively marketed the FTX platform” and are thus liable for damages.

Similarly, Hong Kong-based Canadian citizen Elliot Lam’s California class action accuses the defendants of “fraudulent and deceitful conduct,” specifically, in their status as ‘brand ambassadors’ for FTX, using their “social media reach and personal brands to induce unsophisticated investors and consumers into a relationship with the FTX entities.”

Sam Bankman-Fried and the Golden State Warriors are defendants in both cases, while the Florida filing also names a host of high-profile celebrities who endorsed FTX, including Tom Brady, Shaquille O’Neal, and Stephen Curry, as well as key ‘brand ambassadors’ such as Kevin O’Leary—who in the aftermath of FTX’s collapse was on CNBC railing against the poorly regulated digital asset space.

The other key name in the California suit is Caroline Ellison, CEO of Alameda research, the controversial organization that became a financial black hole for FTX and has been blamed by some for causing its eventual liquidity crisis.

Both class actions seek to represent transnational/global people outside the U.S. who purchased or enrolled in a YBA and, in Lam’s case, “otherwise invested in one or more FTX Entities.”

These classes potentially comprise “thousands, if not millions, of consumers globally,” suggests the Kavuri filing, with damages in both cases potentially in the millions of dollars.

An obvious course of action for the defendants would be the “caveat emptor” or ‘buyer beware’ defense. However, Kavuri’s Florida filing attempts to pre-emptively dismiss this by claiming that investors like him did not sign up for a risky stock or “cryptocurrency” but a “very safe” and “protected” YBA—an account which he suggests, “every customer who signed up for the FTX app received by default.”

Kavuri’s document highlights that the U.S. Securities and Exchange Commission (SEC) has taken action against platforms offering products like those provided by FTX: “The SEC and state securities regulators have also targeted cryptocurrency brokers and exchanges just like FTX for offering almost this exact same type of interest-bearing account.”

Lam’s filing also addresses the ‘buyer beware’ elephant in the courtroom, spending significant time pointing out how the FTX YBAs in question were, in fact, “unregistered securities” and as securities should have been regulated and protected by law.

News of the filings will be a further blow to Bankman-Fried, coming as they do barely a week after a similar class action was filed in Miami by Oklahoma resident and FTX YBA holder Edwin Garrison—a suit that likewise sites Tom Brady, Kevin O’Leary, Stephen Curry and the Golden State Warriors amongst its defendants.

Bankman-Fried is currently in the Bahamas but could be extradited to the U.S. to answer questions about his involvement in the collapse of FTX, as well as potentially appearing in front of several sets of juries. What does seem certain is that these latest class actions are only the opening salvos from investors, as Lam’s filing damningly sums up:

“The scale of this Ponzi-scheme-like fraud was matched only by the scale of the publicity campaign employed by Bankman-Fried and the FTX Entities to conjure up an illusion of financial and corporate success.”

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