Sam Bankman-Fried purchased a 7.6% stake in Robinhood earlier this year. He financed it with over half a million dollars borrowed from his hedge fund. Prosecutors allege that the entity was illegally funneling customer money from its affiliate platform, FTX.
Bankman-Fried, a co-founder of FTX, stated Tuesday that he and Gary Wang borrowed more than $546 million from Alameda Research. This money was used to purchase Robinhood shares through a holding company controlled primarily by Bankman-Fried.
In cooperation with US prosecutors, Wang has pleaded guilty in the past to four counts of fraud and conspiracy. Eight criminal charges have been brought against Bankman-Fried.
He has denied knowingly committing fraudulent acts since stepping down as FTX’s chief executive. His arraignment date has not been set. He was taken into custody in the Bahamas earlier this month and was extradited to the US the following week. He is currently under house arrest at his California parents’ home and will enter a plea before a federal court in Manhattan in January. If convicted, he could be sentenced to life imprisonment
Bankman-Fried’s stake at Robinhood is currently the focus of a separate, multi-national legal battle over assets associated with FTX’s bankrupt crypto empire.
The shares are worth approximately $450 million and have been claimed by four different entities. FTX’s new management is trying to recoup funds for customers and investors of the bankrupt platform. They want to seize control of the shares from an Antigua-based holding firm 90% owned by Bankman-Fried.
According to FTX, Bankman-Fried claims ownership of the shares and is seeking payment for legal expenses. The Robinhood shares are also claimed by a bankrupt crypto lender BlockFi and an individual FTX creditor.
FTX filed a motion to the Delaware bankruptcy court earlier this month because of the competing claims. The court requested that the assets be frozen until it “can fairly resolve these issues for all creditors of Debtors.”
The court filings don’t indicate whether $546 million was used to buy the stake. This is because the funds were allegedly stolen from customer deposits at FTX.
BlockFi, a prominent crypto lender stopped withdrawals after FTX collapsed. This was due to significant exposure to the trading platform. It filed for bankruptcy on November 28th, just two weeks after FTX and Alameda went under.
BlockFi sued Bankman-Fried over Robinhood shares. BlockFi claims that Robinhood shares are owed to it after Alameda defaulted upon $680 million in collateralized loan obligations.
Vlad Tenev, CEO of Robinhood, told CNBC earlier this month that he was “not surprised” that the stake is one the most valuable assets on FTX’s books due to it being a stock company.
“We don’t have much information that you guys do not have. We are just watching the unfolding of this and… it will be locked up bankruptcy proceedings, most probably for a while.”
Robinhood has suffered a terrible loss due to the implosion of cryptocurrency. After cutting 9% of its workforce in April, the company laid off 23% of its employees in August. As trading has dried up, the stock of this online brokerage has fallen into freefall.