Court documents show that the former FTX head is asking to use a $10 million insurance plan to pay for his legal fees. FTX debtors and unsecured creditors have objected to Sam Bankman-Fried’s request, arguing that every dollar spent on his defense is “one less dollar” available to cover the losses of the debtors.
FTX Debtors and Unsecured Creditors Refuse Sam Bankman-Fried’s Request for D&O Funds
Sam Bankman-Fried (SBF), the ex-CEO of FTX, is trying to gain access to a $10 million legal insurance fund to cover his defense costs. The filing states that FTX’s $10 million director and officer (D&O) insurance plan covers individuals who are “legally obligated to pay on account of any claim first made against them.” However, FTX debtors and the committee of unsecured creditors have criticized SBF’s application, arguing that giving him access to the insurance funds would hurt the debtors and cause “material prejudice.”
“Thus, for each dollar extended by the insurer to Mr. Bankman-Fried’s defense costs, there is one less dollar to pay the WRS Debtors’ insured Losses,” the debtors declare.
The debtors emphasize that the insurance policy excludes claims arising from “violations of securities laws, violations of money laundering laws, and any willful or fraudulent acts or omissions.” The lawyers explain that the D&O policy belongs to the debtors’ estates, and therefore, the court should not grant Sam Bankman-Fried unrestricted access to it.
Rather, the debtors believe that the court should require SBF to obey the bankruptcy court’s 2016 compensation rules. Even though SBF says that depleting the D&O policy would not harm the debtors’ estate, the debtors and unsecured creditors strongly dissent, stating that this claim is “flat wrong.”
The court filing adds:
Mr. Bankman-Fried is also wrong in asserting that coverage for the debtors’ estate is ‘hypothetical or speculative’ and that the debtors ‘have no present contractual interest in the proceeds of the D&O policies.’ As noted above, the debtors have retained pool counsel to represent certain present or former employees of the debtors, whose fees are an insurable expense.
The recent objections to SBF’s request for D&O funds are a result of the allegations that he has been using Alameda funds to cover his legal defense costs. According to sources cited by Forbes, SBF is supposedly using a gift of $10 million he gave to his father in 2021 to pay for his white-collar legal team.
Do you think Sam Bankman-Fried should be given access to the $10 million legal insurance fund for his defense expenses, or should the court require him to comply with the bankruptcy court’s 2016 compensation rules? Express your views in the comments below.
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