The U.S. Justice Department has taken custody of $450 million in Robinhood shares from FTX, a cryptocurrency exchange that collapsed in May 2022.
• The shares were purchased by a holding company called Emergent, which was formed by then-CEO Sam Bankman-Fried and cofounder Gary Wang.
• Alameda Research loaned Bankman-Fried and Wang $546 million to buy the shares.
• FTX is now urging the bankruptcy court overseeing the exchange’s unwinding to freeze roughly $450 million in Robinhood shares.
The case around FTX and its involvement with Robinhood shares has become more complicated and has raised concerns. Back in May 2022, Sam Bankman-Fried and Gary Wang created Emergent Holding Company to buy shares in the publicly traded platform. Money for the purchase came from $546 million worth of loans from Alameda Research. Now, the U.S. Justice Department has taken custody of these shares which have a current estimated value of $450 million USD. There’s likely more than one party looking to lay claim to the shares, including creditors of FTX and BlockFi who say they were promised them by Bankman-Fried.
Background on Alameda Research and Emergent
Alameda Research is a technology-driven crypto trading firm that was founded in 2018 by Sam Bankman-Fried (SBF). SBF was thought of as an accomplished trader who had been actively involved in the cryptocurrency market since 2013. He was also an early investor in FTX, which he helped to develop into one of the largest leveraged token exchanges in the world.
Along with SBF, Alameda Research had brought together top traders from around the world to create a data-driven trading platform that focuses on risk management and profit maximization. It was later discovered this company was basically built upon lies.
Emergent is another company founded by SBF that provides funding for algorithmic traders through its proprietary loan program called Emergent Capital (EC). EC offers loans ranging from $1 million to over $50 million to algorithmic traders who need capital to fund their strategies or to purchase digital assets such as Bitcoin or Ethereum. According to reports, Alameda Research loaned Bankman-Fried and Wang up to $18 million each through EC earlier this year for their algorithmic trading strategies involving Robinhood options contracts before FTX collapsed.
The Request by FTX To Freeze $450 Million of Robinhood Shares
FTX, now under the leadership of its new CEO John J. Ray III, requested that the bankruptcy court overseeing its unwinding freeze approximately $450 million in Robinhood shares. As a result, FTX’s attorney James Bromley acknowledged on Wednesday that seizure orders were placed by the court in association with criminal actions related to Mr. Bankman, Miss Ellison and Mr. Wang.
He intimated that jurisdictional proceedings are also taking place in Antigua and Barbuda regarding the Robinhood shares in question. Bromley also stressed that FTX is asserting its right to debtors and expects other parties engaged in this case to do the same while ensuring it was clear that accounts not currently controlled by the debtors are where these shares originate from.
The reasoning behind this request was due to concerns over potential fraud within these entities leading up to FTX’s collapse as well as possible manipulation of certain stocks such as GameStop Corp (GME), AMC Entertainment Holdings Inc (AMC), and BlackBerry Ltd (BB). If granted by the court, this request would have prevented any parties associated with FTX from liquidating or transferring these assets for an extended period of time until everything could be sorted out legally.
At the hearing
At the hearing, U.S. Attorney Seth Shapiro informed the court of their intention to submit a notice of seizure detailing all assets taken from FTX. This document will give clarity to future litigation should the case remain unresolved and serves to provide the court with a clear picture at the beginning of the trial on January 20, 2023, when representatives of FTX,
Robinhood’s stocks and any additional pertinent matters would be discussed. Bankman-Fried, Wang, and former Alameda Research CEO Caroline Ellison are facing an array of charges including bank and wire fraud, money laundering, and conspiracy for which they could potentially receive lifelong imprisonment should all accusations be proven accurate in court.
Transparency needed
This saga between Robinhood and FTX is far from over as there are still many unanswered questions about what exactly happened leading up to its collapse. As more details emerge about this story it will be interesting to see how it unfolds further down the line as well as what implications it may have on how digital asset trading firms operate moving forward both domestically within America and abroad worldwide.
It’s clear that greater transparency needs to be implemented within these industries so investors can feel secure when dealing with online exchanges such as Robinhood or FTT moving forward into the future. Only then can we be sure these types of collapses won’t happen again anytime soon.
