When Sam Bankman-Fried bought a nearly 7.6% stake in Robinhood, the popular stock trading app, earlier this year, he financed the deal with more than $500 million borrowed from his own hedge fund, the entity that prosecutors said was illegal channeling of client funds from its affiliate platform, FTX.
In an affidavit that emerged Tuesday, Bankman-Fried said he and FTX co-founded gary wang borrowed more than $546 million from the hedge fund, Alameda Research, which they used to buy Robinhood’s shares through a holding company controlled primarily by Bankman-Fried.
Wang has since pleaded guilty to four counts of fraud and conspiracy, in cooperation with US prosecutors investigating the FTX collapse. Bankman-Fried has been charged with eight criminal charges.
Since resigning from FTX, he has repeatedly denied knowingly committing fraud; An arraignment date for him has not been set. He was arrested earlier this month in the Bahamas, where he had his FTX headquarters, and extradited to the United States last week. He is under house arrest at his parents’ home in California, and is scheduled to plead guilty in federal court in Manhattan on January 3. He could face life in prison if he is convicted.
Bankman-Fried’s stake in Robinhood is now at the center of a separate multinational legal battle over assets associated with the bankrupt FTX crypto empire.
Four separate entities have claimed the approximately 56 million shares, worth approximately $450 million. FTX’s new management, which is trying to recover funds for the bankrupt platform’s investors and clients, wants to wrest control of shares in the Antigua-based holding company, which is 90% owned by Bankman-Fried.
Bankman-Fried himself claims ownership of the shares, seeking a source of payment for legal fees, according to FTX. They also claim that Robinhood shares are bankrupt crypto lender BlockFi and an individual creditor of FTX.
Because competing claims, FTX filed a motion earlier this month to the Delaware bankruptcy court to hold the assets frozen until the court “can resolve the issues fairly to all of the debtors’ creditors.”
It is not clear from court documents whether the $546 million used to buy the stake included funds that prosecutors say were stolen from client deposits at FTX.
BlockFi, a prominent cryptocurrency lender, halted withdrawals when FTX tanked, citing significant exposure to the trading platform. It filed for bankruptcy on November 28, just over two weeks after FTX, Alameda and dozens of affiliates went under.
BlockFi is suing Bankman-Fried for Robinhood’s shares, which BlockFi claims it is owed after Alameda defaulted on $680 million in collateralized loan obligations.
Earlier this month, Robinhood CEO Vlad Tenev told CNBC that he is “not surprised” that the stake is one of the most valuable assets on FTX’s books because it is stock in a public company.
“We don’t have a lot of information that you don’t have. We’re just watching this play out and… he’s going to be locked in bankruptcy proceedings, most likely for some time.”
Meanwhile, the recent cryptocurrency implosion has been disastrous for Robinhood. the company fired 23% of its workforce in August after cutting 9% of its employees in April. Stocks of the online brokerage have been in freefall as trade has dried up.
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