Lead Plaintiff in FTX Fraud MDL Sues 3 Sports Firms for Promoting Crypto Securities

They were the latest lawsuits filed by Moskowitz Law on behalf of lead plaintiff and FTX investor Edwin Garrison, who was the first to file suit following the FTX collapse (docket 2:23-cv-05951). That Nov. 15, 2022, class action came two days after it was revealed that FTX operated an allegedly fraudulent cryptocurrency securities fraud scheme and filed for bankruptcy.

The action named FTX founder Sam Bankman-Fried, along with, among others, former and current MLB players David Ortiz and Shohei Ohtani, tennis star Naomi Osaka, the NBA's Golden State Warriors, former NFL quarterback Tom Brady and Brady’s ex-wife, Gisele Bundchen, as FTX ambassadors.

Garrison's 2022 case was transferred to In Re: FTX Cryptocurrency Exchange Collapse Litigation (docket 3076) in U.S. District Court for Southern Florida in Miami under a June 5 order from Judicial Panel on Multidistrict Litigation Chair Karen Caldwell. The MDL comprises eight actions in two districts, and the JPML was notified of 11 related actions in the Northern District of California, Southern District of Florida, District of New Jersey and Southern District of New York, said Caldwell’s transfer order. Bankman-Fried, meanwhile, was convicted of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering in November in the Southern District of New York.

One of the three cases filed Thursday, Garrison et al v. Furia Esports, was cited in a Friday text-only clerk order in the In Re: FTX Cryptocurrency Exchange Collapse Litigation MDL docket (3076) as a potential tagalong action in Southern Florida district court. The 15-count class action alleges Furia’s actions contributed to the collapse of FTX Trading by “aiding and abetting and/or actively participating in the FTX Group’s massive, multibillion dollar global fraud” and by promoting and offering unregistered securities such as FTX’s yield-bearing accounts (YBA) and native cryptocurrency token via the FTX platform.

The plaintiffs, including Garrison, an Oklahoma resident, bought cryptocurrency through the FTX platform and sustained damages for which esports organization Furia “is liable,” said the complaint. Other plaintiffs are Brandon Orr of Arizona; Leandro Cabo and Ryan Henderson of California; Michael Livieratos of Connecticut; Alexander Chernyavsky, Gregg Podalsky and Vijeth Shetty of Florida; Chukwudozie Ezeokoli of Illinois; Michael Norris of New Jersey; Shengyun Huang of Virginia; Vitor Vozza of Brazil; Kyle Rupprecht of Canada; and Sunil Kavuri of the U.K.

In its alleged scheme, FTX lured class members to make deposits with promises of a guaranteed 8% annual yield on assets equivalent up to $10,000 and a guaranteed 5% yield on amounts of $10,000-$100,000, the complaint said. FTX didn’t register the YBAs to any federal or state securities law, it said. FTX targeted “nascent” investors who were “inexperienced and unsophisticated” by tying higher rates of return to lower deposit amounts with “no fees and no minimum balances,” the complaint said.

FTX assured plaintiffs and class members that their funds “were protected from losses by other users,” the complaint said. Asked about potential for fraud and abuse toward new customers entering the digital asset market for the first time at a May 2022 congressional hearing, Bankman-Fried said that in FTX’s model “there is a lot of capital which is held directly with [Commodity Futures Trading Commission oversight] [and] segregated accounts for margin for the customers’ positions, which also provides a capital backstop,” the complaint said. In ads, FTX billed itself as ““the safest and easiest way to buy and sell crypto.”

In truth, though, Bankman-Fried wanted “a yacht, and he wanted Formula One teams, BMWs, beachfront condos, and cocaine-fueled parties,” said the complaint. “And he got those things -- with Class Member funds.” FTX grew to become one of the largest cryptocurrency exchanges in the world, reaching at its peak trading volume of $21 billion per day with a valuation of over $32 billion.

During the years when COVID-19 pandemic was causing “financial turmoil” for the sports and entertainment industries, Furia had to decide whether to follow organizations such as the NFL or “push ‘all in’ and put the resources and prestige of the Furia brand behind FTX so they could leap to the front of the cryptocurrency world and sell tens of billions of dollars in unregistered and illegal securities to consumers,” the complaint said. Furia went all in, it said.

“Unfortunately for Furia,” said the complaint, citing binding law, “anyone that mass promotes products like FTX’s can be sued for any and all resulting damages.” A promoter like Furia “can be held liable under securities laws for using the Internet and social media for mass solicitations of crypto-related securities, whether for their own or the securities issuer’s” gain, it said. The law now recognizes that the internet, social media and other new platforms “have given promoters an incredible new outlet to aid and participate in selling fraudulent investments to investors across the globe,” it said.

The complaint cited Wildes v. BitConnect International, in which the 11th U.S. Circuit Appeals Court “clearly articulated the standard applicable to mass solicitation of unregistered securities,” ruling that spokespersons who promoted a crypto Ponzi scheme had engaged in “solicitation” of securities by urging people to buy crypto tokens in online videos, the complaint said.

In September, U.S. District Judge William Orrick for Northern California denied a motion to dismiss by a promoter who was sued for participating in a scheme similar to FTX’s to sell unregistered cryptocurrency, said the complaint. He concluded "that the suit alleged that the defendants actively solicited sales of the crypto assets, and were not just 'mere collateral participants,'” it said, citing Houghton v. Leshner.

Among the 15 causes of action in Furia are violations of the Florida Securities and Investor Protection and Deceptive and Unfair Trade Practices acts, civil conspiracy, aiding and abetting fraud and conversion and unjust enrichment. The complaint also listed California claims as an alternative to the nationwide claims, including violations of the Unfair Competition Law Business & Professions Code and the California Securities Law. Oklahoma claims include violation of the state’s Consumer Protection and Uniform Securities acts, it said.

The plaintiffs seek awards of statutory and punitive damages and restitution, plus injunctive relief and the recovery of attorneys’ fees and court costs. The same plaintiffs filed largely identical complaints Thursday against Riot Games and Northern America League of Legends Championship Series (docket 2:24-cv-01841) in U.S. District Court for Central California in Los Angeles (docket 2:24-cv-01841) and against Monumental Sports & Entertainment, owner of the Washington Capitals, Wizards and Mystics, in U.S. District Court for the District of Columbia (docket 1:24-cv-00655).