K5 Global faces $700M lawsuit by FTX.

The bankrupt FTX exchange has filed a lawsuit against K5 Global, an investment firm owned by a former aide to Hillary Clinton. The lawsuit was filed in the United States Bankruptcy Court for the District of Delaware and contains 16 counts against the defendants. The lawsuit seeks to recover about $700 million from them.

The defendants include K5 Global, Mount Olympus Capital, SGN Albany Capital, their affiliates, and K5 Global co-founders Michael Kives and Bryan Baum. The lawsuit also revealed that the then-CEO of FTX, Sam Bankman-Fried (SBF), misappropriated company funds for personal gains.

FTX Says Deal with K5 Global was ‘Avoidable’

FTX alleges that its investment arm, Alameda Research, transferred no less than $700 million to Kives, Baum, and K5 Global. The complaint also added that the transfers were done as though they had any business with shell companies SGN Albany and Mount Olympus Capital.

However, the lawsuit points out that the transfers were carried out “without receiving equivalent value,” thus making them avoidable. Under the US bankruptcy law, an avoidable transaction can be reversed under the Bankruptcy Code.

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Nine out of the 16 counts in the lawsuit were about fund transfers. But Kives and Baum got personal charges for aiding and abetting breach of fiduciary duty and dishonest assistance. SGN Albany Capital, on the other hand, was charged with unjust enrichment.

Lawsuit Lacks Merit, K5 Responds

K5 Global has dispelled the allegations and has responded to the lawsuit. According to a company spokesperson, the entire lawsuit lacks merit and should not even be made to look important.

The spokesperson cites how K5 is a Venture Capital firm with over $1 billion in assets under management (AUM). That is excluding any funds linked to SBF or affiliates. K5 also has investments in 148 companies, he said.

However, the spokesperson also acknowledged that FTX’s Alameda truly bought a third of K5’s general partnership for cash and stock in mid-2022. That, and that SBF and his company eventually made a $400 million investment in certain funds managed by K5. Nonetheless, the spokesperson said that “K5 was under the impression – like many others – that SBF was completely legitimate and they were entering into a fair, long-term, and mutually beneficial business relationship.”