Days after Sam Bankman-Fried, former FTX CEO, was found guilty on all seven criminal charges, the legal turmoil surrounding the fallen crypto exchange continues.
Former FTX executives are now in a heated dispute over who deserves a share of the company’s insurance policies to cover their mounting legal bills. Unfortunately, the problem lies in the fact that there is insufficient insurance money available for all parties involved, as reported by Bloomberg.
Insurance Lawsuit Unveils Discord Among FTX Executives
According to Bloomberg, the FTX legal saga took a new turn when Bankman-Fried filed a lawsuit against Continental Casualty, one of the exchange’s insurers, just a day before his criminal trial began in October.
Bankman-Fried alleged that the CNA Financial Corp. subsidiary breached its contract by refusing to cover his legal expenses. Shortly thereafter, Daniel Friedberg, FTX’s former general counsel and chief regulatory officer, requested to join the lawsuit. He argued that it was unfair for him to receive no coverage while Bankman-Fried and other executives depleted the $20 million directors and officers’ insurance policy.
However, Bankman-Fried voluntarily dismissed his complaint against Continental on Monday, October 30, taking the insurance battle behind closed doors just four days after his conviction by a jury.
Per the report, the dispute over insurance coverage extends beyond FTX. It raises broader questions about the fair allocation of directors’ and officers’ insurance payments when numerous executives are vying for limited funds.
FTX directors and officers insurers are now facing the challenge of covering legal fees for over 20 executives who are targets of criminal investigations and civil lawsuits linked to the collapsed exchange.
Former Executive Decries Insufficient Resources For Legal Defense
According to Bloomberg, Friedberg, whom FTX’s new management has accused of being a “fixer” for Bankman-Fried and the company, argues that the insurers act in “bad faith” if they do not allocate the payments equally.
The insurance dispute initially arose in July 2023, when Friedberg objected to the directors and officers (D&O) carriers’ plan to distribute payments among FTX’s former executives.
This objection came after FTX’s new management sued Friedberg, accusing him of assisting Bankman-Fried in embezzling billions in customer funds.
Friedberg, who claims to have paid over $800,000 in defense costs “out of pocket” and failed to secure D&O coverage, argued that he lacked the resources to continue funding his defense.
FTX’s insurance coverage involves four D&O insurers, each with a $5 million policy limit. The primary insurer, Beazley Plc, and the first “excess” insurer, QBE Insurance Group, paid their total share earlier this year.
The second excess insurer, Continental Casualty, a subsidiary of CNA, had disbursed over $871,000 by September but then ceased further payments as required by the policy, according to Bankman-Fried’s complaint.
The final carrier, Hiscox, deposited the insurance funds with the US District Court for the Northern District of California in August, shortly after Friedberg objected to the allocation plan, seeking the court’s guidance on dividing its $5 million among the executives.
Hiscox stated that the distribution might be influenced by facts uncovered during litigation against FTX and its executives, including future trials.
According to Bloomberg, the outcome of the insurance dispute may also be influenced by evidence emerging from litigation that Bankman-Fried and other FTX executives may have misrepresented the company’s financials on the insurance application.
Featured image from Shutterstock, chart from TradingView.com