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Accounting & Audit

Lawsuit Filed Against FTX and Promoters, Including Tom Brady and Shaq

The civil lawsuit filed in Miami federal court is far from the only legal problem for the Bahamas-based company, whose filing for bankruptcy has shaken the cryptocurrency markets.

By Jay Weaver, Miami Herald (via TNS).

FTX Exchange, the once high-flying cryptocurrency trader with its name emblazoned on the Miami Heat arena, has been targeted in a new lawsuit that also names 11 of its big-name advertising promoters, including football icon Tom Brady and his ex-wife, supermodel Gisele Bundchen, as well as NBA legend and former Heat star Shaquille O’Neal.

The civil lawsuit filed in Miami federal court is far from the only legal problem for the Bahamas-based company, whose filing for bankruptcy has shaken the cryptocurrency markets. The company is already under federal scrutiny for potential securities violations but also faces a criminal probe.

On Tuesday, Homeland Security Investigations in Miami announced on Twitter that it has an “ongoing criminal investigation” and is seeking information from victims who may have invested in the FTX platform. The HSI investigation is headed by El Dorado Task Force South, which specializes in fraud, money laundering and other crimes extending from the United States to foreign countries.

The civil lawsuit filed late Tuesday seeks class-action designation to represent all FTX investors. The lead named defendant is FTX founder Sam Bankman-Fried, an MIT grad and funds trader, but also seeks damages from nearly a dozen celebrity promoters.

In addition to Brady, the Tampa Bay Buccaneers quarterback, Bundchen, and O’Neal, the other names in the suit are Jacksonville Jaguars quarterback Trevor Lawrence, Warriors superstar Stephen Curry, tennis star Naomi Osaka, Angels star Shohei Ohtani, and the Golden State Warriors team. Comedian Larry David, the creator of “Seinfeld” and “Curb Your Enthusiasm,” is also named

The suit, filed by attorneys Adam Moskowitz and David Boies, claims they engaged in deceptive practices to sell FTX yield-bearing digital currency accounts.

John J. Ray III, FTX’s new chief executive who is not named as a defendant in the lawsuit, declined to comment on the allegations, according to Reuters.

FTX filed for bankruptcy on Friday and is facing scrutiny from U.S. authorities amid reports that $10 billion in customer assets were shifted from FTX to Bankman-Fried’s trading company, Alameda Research. When the crypto exchange faltered on liquidity concerns, U.S. investors sustained $11 billion in damages, the new lawsuit says.

“The deceptive and failed FTX Platform was based upon false representations and deceptive conduct,” according to the suit, arguing that the “fraudulent scheme was designed to take advantage of unsophisticated investors from across the country.”

“Miami became the ‘hot spot’ for crypto companies,” Moskowitz and Boies wrote in the suit, pointing out that FTX had signed a $135 million deal with Miami-Dade County for the naming rights to the former American Airlines Arena where the three-time champion Miami Heat play. That deal is now dead with FTX’s bankruptcy.

On Friday night, Miami-Dade County and the Heat issued a joint statement to announce they are taking action to terminate their business relationships with FTX and will work together to find a new naming rights partner for the arena.

“The reports about FTX and its affiliates are extremely disappointing,” the statement read. “Miami-Dade County and the Miami Heat are immediately taking action to terminate our business relationships with FTX, and we will be working together to find a new naming rights partner for the arena.”

Brady and Bundchen were FTX ambassadors and had an equity stake in FTX Trading, the suit said. They were also involved in an ad campaign last year and appeared in a commercial “telling acquaintances to join the FTX platform.”

The suit alleges that FTX needed big names like Brady “to continue funneling investors into the FTX Ponzi scheme, and to promote and substantially assist in the sale of the (accounts), which are unregistered securities.”

Brady reportedly has deleted many tweets showing his involvement with FTX and its top executive. FTX once traded $15 billion daily, but its business has crumbled, the Tampa Bay Times reported.

The Miami lawsuit was brought on behalf of Edwin Garrison, an Oklahoma resident who had an FTX yield-bearing account which he funded with crypto assets to earn interest, and others like him. Garrison alleges that while FTX lured U.S. investors to its yield-bearing accounts, it was a “Ponzi scheme” where investor funds were shuffled to related entities to maintain the appearance of liquidity.

Investors and the U.S. Securities and Exchange Commission have previously gone after celebrities for deceptively touting cryptocurrencies.

Reality TV star Kim Kardashian agreed in February to pay the SEC $1.26 million to settle claims that she failed to disclose she was paid to promote EthereumMax tokens. She did not admit wrongdoing. Private investors also have sued Kardashian and others over their roles in promoting the tokens.

The new suit alleges Bankman-Fried and FTX promoters engaged in a conspiracy to defraud investors and violated Florida state laws requiring securities to be registered and prohibiting unfair business practices.

Sean Masson, an attorney at Scott+Scott who represents crypto investors in the EMAX case, said investors have used the Florida unfair trade law to target crypto promoters in lawsuits that are pending.

“To be successful, they are going to need to establish a deceptive act or unfair practice, and that it caused actual damages,” Masson told Reuters.

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