Bankrupt crypto exchange FTX has taken action against cross-chain protocol LayerZero Labs, aiming to reclaim a staggering $21 million in funds that were allegedly withdrawn unlawfully ahead of FTX’s closure in November.
The contentious case stems from a series of transactions that unfolded between January and May 2022, primarily involving Alameda Ventures, the venture capital arm of Alameda Research and FTX’s sister company, and LayerZero.
Court documents, dated September 9, reveal that Alameda Ventures executed two transactions, collectively amounting to over $70 million, to secure an approximately 4.92% stake in LayerZero. Additionally, in March, Alameda Ventures participated in a public auction, acquiring 100 million STG tokens for $25 million, with distribution scheduled to commence in March 2023.
Amidst these financial dealings, LayerZero extended a $45 million loan to Alameda Ventures’ parent company, Alameda Research, backed by an 8% annual interest promissory note.
The Turn of Events
As FTX faced its imminent crisis in early November, LayerZero initiated negotiations to recover its stake held by Alameda. The agreement encompassed the return of shares to LayerZero in exchange for forgiving the $45 million loan. Simultaneously, a related agreement concerning 100 million STG tokens was also on the table, with LayerZero planning to repurchase them at a discounted rate of $10 million on November 9. Regrettably, this transaction remained incomplete as LayerZero failed to make the payment, and Alameda Ventures did not transfer the tokens.
The exchange alleges in its lawsuit that LayerZero took advantage of Alameda Ventures during a liquidity crisis. The lawsuit contends, “LayerZero was well aware that Alameda Research was facing a liquidity crisis and, within about 24 hours, negotiated a fire-sale transaction with Caroline Ellison, Alameda Research’s then-CEO.”
FTX’s Legal Battle Ahead
In addition to the annulment of the agreements, the lawsuit seeks to recuperate the funds withdrawn in the days leading up to FTX’s bankruptcy filing. This includes approximately $21.37 million from LayerZero Labs, $13.07 million from Ari Litan, its former chief operating officer, and $6.65 million from a subsidiary known as Skip & Goose.
LayerZero Labs joins a list of entities sued by the exchange in its quest to reclaim substantial amounts of funds from various subsidiaries before the conglomerate’s downfall.
This legal confrontation between FTX and LayerZero Labs underscores the challenges and complexities facing the cryptocurrency industry as it matures and navigates intricate financial transactions and disputes. As the case unfolds, it is sure to capture the attention of the crypto community and legal experts alike. Stay tuned for further developments in this high-stakes battle.