FTX CEO And Public Figures Face Class Action Suit In Wake of FTX Collapse
Yesterday, a class action lawsuit was filed in the United States District Court for the Southern District of Florida against FTX CEO Sam Bankman-Fried and other well-known celebrities, athletes, organizations and public figures (hereinafter “Defendants”) for allegedly promoting the offer and sale of unregistered securities in the form of FTX yield-bearing cryptocurrency accounts (hereinafter “YBAs”) and receiving “secret undisclosed compensation” for their promotion of FTX products and services, including the YBAs. The complaint alleges that these actions cost consumers over $11 billion dollars.
The plaintiff, Edward Garrison, is an individual who purchased a YBA, funded it with cryptocurrency and then earned interest on these holdings. According to the complaint, Garrison allegedly relied on Defendants’ statements when investing in the YBA. Garrison seeks to represent a nationwide class (with a Florida subclass) of all persons or entities in the U.S. who purchased or enrolled in a FTX YBA.
More specifically, the complaint alleges that FTX utilized big names in sports and entertainment, i.e. Defendants, to raise funds and drive investment in the YBAs. Although the complaint recognizes that Defendants disclosed their partnership with FTX, it alleges that Defendants failed to disclose “the nature, scope and amount” of compensation they personally received for their promotion and failed to perform due diligence prior to marketing FTX products. In this vein, the complaint points to Defendants’ specific ad campaigns (including a Super Bowl ad), tweets and public statements encouraging and promoting FTX products.
Importantly, the complaint also alleges that the YBAs were securities under the Security and Exchange Commission’s Howey Test (described in this blog post) because (1) the YBAs earned interest rewards on crypto assets held by investors in those YBAs and (2) to fund the promised interest, FTX pooled YBA assets to engage in lending and staking activities.
The complaint contains four specific counts:
Violations of the Florida Securities and Investor Protection Act, which provides that it is unlawful for any person to sell or offer to sell a security within the State of Florida unless the security is exempt, is sold in an exempt transaction, is a federally covered security or is registered under Florida Statute Chapter 517. Plaintiff alleges that Defendants violated this statute given that they allegedly sold/offered to sell the YBAs, which were unregistered securities and were not exempt.
Violations of the Florida Deceptive and Unfair Trade Practices Act, which seeks to protect consumers from those engaging in “unfair methods of competition, or . . . deceptive or unfair acts or practices in the conduct of any trade or commerce.” Plaintiff alleges that Defendants violated this statute by allegedly misleading consumers through falsely advertising that FTX products and services were safe and not unregistered securities, which allegedly caused consumers to lose money.
Civil Conspiracy for allegedly entering into agreements with FTX for the purpose of making misrepresentations and omissions to induce plaintiff and consumers to invest in the YBAs.
Declaratory Judgment under Florida Statutes 86.011, et. seq., seeking an order declaring that the YBAs were securities required to be registered with the SEC and state regulatory authorities, that the FTX platform did not work as represented and that Defendants were paid “exorbitant sums of money” to promote FTX.
In terms of relief, plaintiff seeks compensatory damages, restitution and disgorgement of revenues, declaratory and injunctive relief, statutory and multiple damages, and attorneys’ fees and costs.
The case is Garrison v. Sam Bankman-Fried, No. 22-cv-23753 (S.D. Fla Nov. 15, 2022).
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