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 half a billion dollars borrowed from his own hedge fund — the entity that prosecutors say was illegally funneling customer funds from its affiliated platform, FTX.
In an affidavit that emerged Tuesday, Bankman-Fried said he and FTX co-founder Gary Wang borrowed more than $546 million from the hedge fund, Alameda Research, which they used to purchase the Robinhood shares via a holding company primarily controlled by Bankman-Fried.
Wang has since pleaded guilty to four counts of fraud and conspiracy, in cooperation with US prosecutors investigating FTX’s collapse. Bankman-Fried has been indicted on eight criminal counts. Since stepping down from FTX, he has repeatedly denied knowingly committing fraud; his arraignment date hasn’t been set. He was arrested earlier this month in the Bahamas, where FTX was based, and extradited to the US last week. He is under house arrest at his parents’ home in California, and if found guilty could face life in prison.
Bankman-Fried’s stake in Robinhood is now at the center of a separate, multinational legal battle over the assets associated with FTX’s bankrupt crypto empire.
Four separate entities have laid claim to the approximately 56 million shares, worth about $450 million. FTX’s new management, which is trying to claw back funds for investors and customers of the bankrupt platform, want to wrest control of the shares from the Antigua-based holding company 90% owned by Bankman-Fried.
Bankman-Fried himself claims ownership of the shares, seeking a source of payment for legal expenses, according to FTX. Also claiming the Robinhood shares are bankrupt crypto lender BlockFi, and an individual FTX creditor.
Because the competing claims, FTX filed a motion earlier this month to the Delaware bankruptcy court to keep the assets frozen until the court “can resolve the issues in a manner that is fair to all creditors of the Debtors.”
It’s not clear from the court filings whether the $546 million used to purchase the stake included funds that prosecutors allege were stolen from customer deposits in FTX.
BlockFi, a prominent crypto lender, halted withdrawals as FTX came unraveled, 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 the Robinhood 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’s “not surprised” the stake is one of the more valuable assets on FTX’s books because it is a public company’s stock.
“We don’t have a lot of information that you guys don’t have. We’re just watching this unfold and … it’s going to be locked up in bankruptcy proceedings, most likely for some time.”
Meanwhile, the recent implosion of cryptocurrencies has been disastrous for Robinhood. The company laid off 23% of its staff in August after cutting 9% of its employees in April. The online brokerage’s stock has been in freefall as trading has dried up.