(The Herald Post) – Sam Bankman-Fried (SBF), former CEO of FTX, is seeking access to a $10 million legal insurance fund for his defense expenses. According to the filing, FTX’s director and officer (D&O) insurance policy, worth $10 million, 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 request, arguing that granting him access to the insurance funds would harm the debtors and cause “material prejudice.”
Debtors argue that every dollar extended to SBF’s defense costs would mean one less dollar to cover the debtors’ losses. They emphasize that the insurance policy explicitly excludes claims arising from “violations of securities laws, violations of money laundering laws, and any willful or fraudulent acts or omissions.” The lawyers assert that the D&O policy belongs to the debtors’ estates, and therefore, the court should not grant Sam Bankman-Fried unrestricted access to it.
Instead, the debtors believe that the court should require SBF to adhere to the bankruptcy court’s 2016 compensation rules. While SBF claims that depleting the D&O policy would not harm the debtors’ estate, the debtors and unsecured creditors strongly disagree, stating that this assertion is “flat wrong.”
The court filing goes on to argue that Mr. Bankman-Fried is mistaken 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 in the filing, the debtors have retained pool counsel to represent certain current or former employees of the debtors, whose fees are considered an insurable expense.
The recent objections to SBF’s request for D&O funds arise from allegations that he has been using Alameda funds to cover his legal defense expenses. According to sources cited by Forbes, SBF is purportedly using a gift of $10 million he gave to his father in 2021 to pay for his white-collar legal team. This revelation has added fuel to the opposition’s argument, further complicating SBF’s bid for access to the D&O insurance funds.