US crypto investors sued FTX founder Sam Bankman-Fried and several celebrities who promoted his exchange including NFL quarterback Tom Brady and comedian Larry David, claiming they engaged in deceptive practices to sell FTX yield-bearing digital currency accounts.
The proposed class action filed on Tuesday night in Miami
alleges that FTX yield-bearing accounts were unregistered securities that were
unlawfully sold in the United States.
FTX filed for bankruptcy and is facing scrutiny from the US
authorities amid reports that $10 billion (nearly Rs. 81,500 crore) in customer
assets were shifted from FTX to Bankman-Fried's trading company Alameda
Research.
At least $1 billion in client funds are missing, sources
have told Reuters.
When the crypto exchange faltered on liquidity concerns, US
investors sustained $11 billion in damages, the lawsuit says.
The lawsuit seeks damages from Bankman-Fried and 11 athletes
and other celebrities who promoted FTX, including David, the creator of
"Seinfeld" and "Curb Your Enthusiasm."
David starred in a commercial for FTX that aired during the
2022 Super Bowl in which he portrayed fictional characters dismissing important
innovations throughout history and ended with the message "Don't Miss Out
on Crypto."
Brady, tennis star Naomi Osaka and professional basketball
team the Golden State Warriors are also defendants in the lawsuit.
Representatives for Bankman-Fried, Brady, Osaka, David and
the Golden State Warriors did not immediately respond to requests for comment
on Wednesday.
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.
The 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 the US 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 the US 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.
Garrison cited these cases in his lawsuit, as well as a
February ruling by the 11th US Circuit Court of Appeals that allowed BitConnect
cryptocurrency investors to sue individuals who promoted the coin online.
His lawsuit 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 said. © Reuters