FTX cryptocurrency exchange has filed a lawsuit against LayerZero Labs, the company behind cross-chain interoperability protocol LayerZero, to recover US$21.37 million that LayerZero allegedly withdrew from the exchange illegally prior to its Chapter 11 bankruptcy.
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Fast facts
- FTX’s complaint alleges that LayerZero exploited Alameda Ventures, the venture capital arm of FTX’s sister company Alameda Research, by withdrawing money in the time of financial difficulties at FTX using insider knowledge.
- On top of the US$21 million recovery, FTX also seeks to cancel agreements made prior to the collapse.
- Alameda Ventures entered a series of transactions with LayerZero from January to May last year, including Alameda paying over US$70 million across two transactions to purchase a 4.92% stake in LayerZero.
- In March, Alameda Ventures also paid another US$25 million for 100 million STG tokens at Alameda’s public auction. STG is the native token for StarGate Finance, a cross-chain liquidity platform built on LayerZero.
- In February 2022, LayerZero lent $45 million to Alameda Research under a promissory note bearing an annual interest rate of 8%. When FTX started to collapse in November 2022, LayerZero sought a deal for the return of its stake owned by Alameda in exchange for the forgiveness of the US$45 million loan.
- Another deal was reached after the FTX collapse for LayerZero to purchase back 100 million STG tokens at a discount for US$10 million on Nov. 9, 2022, but this transaction was not completed as neither party transferred or paid for the tokens.
- FTX’s filing described that this “fire-sale” capitalized on Alameda’s financial distress.
- FTX also wants to recoup US$13 million withdrawn by LayerZero’s former chief operating officer Ari Litan and US$6.65 million by LayerZero’s subsidiary Skip & Goose.
- Bryan Pellegrino, the co-founder and chief executive officer of LayerZero Labs, wrote on X social media that FTX suit is “filled with unsubstantiated claims,” explaining that the company has made continued efforts to address issues that have been ignored by FTX.
- FTX and its sister hedge fund Alameda Research filed for Chapter 11 bankruptcy protection on Nov. 1. Allegations of misappropriation of billions of dollars in client funds and other wrongdoings soon followed.
- Now led by corporate restructuring expert John J. Ray III, FTX is trying to sell, stake and hedge the exchange’s US$3 billion of crypto holdings. The Wall Street Journal reported in late June that the company is now mulling a revival.
- FTX is also trying to claw back millions of dollars it paid celebrity endorsers and sports teams prior to its bankruptcy. The list includes Shaquille O’Neal, tennis pro Naomi Osaka and the Miami Heats.
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