Judge Denies FTX Former CEO, Bankman-Fried Access To $10 Million Insurance Policy.

The former CEO of the now-bankrupt cryptocurrency exchange FTX sought approval from the court to reimburse his legal fees using a $10 million FTX director insurance policy. Following a court hearing on Wednesday, April 12, Judge John Dorsey denied the former CEO, Sam Bankman-Fried (alias SBF), access to the fund. 

FTX got released under bail after US authorities arrested him for allegedly misusing customers’ funds at his crypto exchange and committing wire fraud-related offenses. But the former CEO and founder of the once-prominent cryptocurrency conglomerate pleaded not guilty to all charges. 

However, with several hearings passed as SBF pleads his defense before the court, experts say his legal bill could run into millions of dollars. Unfortunately, his latest attempt to raise funds has failed. The Bankruptcy Court judge said the evidence that he needed the funds for his legal fees was insufficient. 

Sam Bankman-Fried Requests For Insurance Payout To Settle Legal Expenses Failed

While SBF continued his defense over alleged wire fraud charges and FTX bankruptcy, the embattled ex-CEO filed a motion seeking a $10 million insurance payout. If the court approves, the exchange’s insurance providers will process his claims for the insurance money to pay his legal expenses.

The Bankruptcy Court for the Delaware District had set the hearing date for April 12, 2023. However, as the court sat for the hearing, the bankruptcy judge examined SBF’s motion and reasons for wanting the insurance payout. 

After cross-examinations, Judge Dorsey concluded that the troubled ex-CEO presented no evidence to back his claims on the funds. Hence, the court denied the motion.  According to Judge Dorsey, the court will sit to hear the matter again if Bankman-Fried decides to come back with the necessary evidence. 

It Would Be Unfair To Grant SBF Special Access To Insurance, FTX Lawyer Says

FTX creditors moved a motion asking the court to deny SBF access to the insurance funds. FTX lawyers noted that other employees of the crypto exchange are qualified to use the insurance funds, and it would be unfair for the court to grant SBF special access. But SBF’s spokesperson did not comment on this matter. 

Firms often buy insurance policies to protect directors and officers should they face legal action. However, some insurance policies take exception to fraud-related crimes and would not be available to the insured should they face such charges. But the FTX insurance plan details remain unclear since no document shows any exceptions.

FTX has insurance policies with Relm Insurance and Beazley Insurance. According to reports, Relm Insurance allocated an undisclosed amount of its reserves for claims that may arise from the FTX implosion. 

Relm Insurance CEO and co-founder Joe Ziolkowski commented on the FTX insurance policy in a statement. According to the CEO, the firm holds its customers’ trust and confidentiality in high esteem and would not comment on insurance specifics or situations concerning the insured. 

However, Ziolkowski emphasized that Relm is committed to building resilience in the crypto ecosystem. And that includes evaluating and paying legitimate claims under the company’s policies and terms. Beazley has not responded to reporters’ requests for comment regarding the situation. 

Civil Litigations Against SBF By US Regulators Postponed Till Further Notice

Besides charges against Sam Bankman-Fried by US prosecutors, the SEC and CFTC also filed complaints against him. The US Securities and Exchanges Commission (SEC) filed a lawsuit against SBF on December 13, alleging the former CEO diverted FTX customer funds in a scheme to defraud equity investors. According to the SEC, SBF raised over $1.8 billion from investors and secretly diverted the funds to Alameda Research.

The same day, the Commodity Futures Trading Commission (CFTC charged Sam Bankman-Fried, FTX Trading, and Alameda Research with Fraud and Material Misrepresentation. Both cases are still pending since a criminal trial against the defendant is ongoing. 

In a February 2023 filing, US prosecutors requested a hold on the civil fraud cases brought to the court by the regulators until the criminal trial ends. According to the prosecutors, putting the civil cases on hold will save time and resources since the criminal case outcome could significantly impact the issues in dispute. 

On February 13, a Judge granted the prosecutors’ request to delay the SEC and CFTC’s petitions till after the criminal trial.

FTX Recovers $7.3 Billion in Assets

Meanwhile, on April 12, FTX Exchange reportedly recovered over $7.3 billion in cash and liquid assets, over $800 million since January. FTX’s lawyer, Attorney Andy Dietderich, revealed this on Wednesday, April 12, during a hearing at the US Bankruptcy Court in Delaware. 

Dietderich said the situation at FTX has stabilized, and the company is considering a reopening. That is after dedicating months to recovering resources and investigating the management team’s wrongdoings. 

According to the attorney, the recent rise in cryptocurrency prices benefited FTX. The exchange’s total recovery is approximately $6.2 billion following November 2022 crypto prices, when the firm filed for bankruptcy.