FTX Legal Battle: Pursuing $21M From LayerZero Labs Pre-Bankruptcy

FTX is currently seeking to inval­idate agree­ments that were made shortly before its collapse. Additi­onally, they are working towards recla­iming millions of funds that have been trans­ferred to LayerZero Labs and its affil­iated entit­ies.

The cryptoc­urrency exchange FTX, which declared bankr­uptcy, has filed a legal action against LayerZero Labs, a cross-chain protocol. Their objective is to retrieve $21 million in funds allegedly withdrawn unlaw­fully before FTX’s closure in Nov.

From Jan to May 2022, there were transa­ctions involving Alameda Ventures, the venture capital division of Alameda Research, which is the sister company of FTX. These transa­ctions are closely connected to the current situation at hand with LayerZ­ero.

According to court records submitted on Sept 9, Alameda Ventures executed two transa­ctions. These transa­ctions amounted to over $70 million, securing approximately a 4.92% ownership stake in Layer­Zero.

In March, Alameda Ventures also participated in a public auction, acquiring 100 million STG tokens for an addit­ional $25 million. The distri­bution of these tokens is scheduled over six months starting in March 2023.

In Feb, LayerZero extended a loan worth $45 million to Alameda Research. This loan was facil­itated through a promi­ssory note, which carried an annual interest rate of 8%. Alameda Research is the parent company of Alameda Ventu­res.

FTX Sues LayerZero Labs For $41 Million Recovery

During the early days of November, as the crisis unfolded at FTX, LayerZero pursued an arran­gement with Alameda to reclaim its stake. This arran­gement involved returning shares to LayerZero in exchange for forgiving a $45 million loan.

Moreover, there was an addit­ional agreement conce­rning 100 million STG tokens that LayerZero intended to repur­chase at a disco­unted rate of $10 million on Nov 9. However, this trans­action remained incom­plete because LayerZero failed to pay, and Alameda Ventures did not transfer the tokens as agreed.

In the lawsuit, FTX claims that LayerZero took advantage of Alameda Ventures during financial instab­ility. LayerZero was fully aware of the financial difficulties facing Alameda Research and quickly initiated a high-p­ressure negot­iation with Caroline Ellison, who served as the CEO of Alameda Research then. This negot­iation unfolded within a remar­kably short span of approximately 24 hours.

The complaint seeks both the annulment of the agreement and the recovery of funds withdrawn shortly before FTX filed for bankr­uptcy. Specif­ically, it aims to recup­erate approximately $21.37 million from LayerZero Labs, $13.07 million from Ari Litan (the former chief operating officer), and $6.65 million from a subsi­diary called Skip & Goose.

FTX has taken legal action against multiple companies, including LayerZero Labs. Moreover, the bankrupt entity is dilig­ently pursuing compen­sation for previous transa­ctions conducted by its various subsid­iaries, amounting to billions of dollars.

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