Crypto exchange FTX, currently undergoing bankruptcy proceedings, has taken legal action against cross-chain protocol LayerZero Labs, aiming to recover $21 million in allegedly unauthorised withdrawals before FTX’s November shutdown.
The lawsuit revolves around transactions executed between January and May 2022, primarily involving Alameda Ventures, the venture capital division of Alameda Research, FTX’s sister company, and LayerZero.
Court documents filed on September 9 reveal that Alameda Ventures conducted two transactions totalling over $70 million to acquire a 4.92% stake in LayerZero. Besides, in March, Alameda Ventures participated in a public auction, securing 100 million STG tokens for $25 million, with a distribution period starting in March 2023.
Super excited to work with @LayerZero_Labs!
They’re building out a key missing piece of crypto infrastructure–cross-chain liquidity.
And more importantly, they’re doing a great job of building great products. https://t.co/TvEC6sfpeE
— SBF (@SBF_FTX) March 30, 2022
Amid these transactions, LayerZero extended a $45 million loan to Alameda Ventures’ parent company, Alameda Research, backed by an 8% annual interest rate.
When FTX faced its financial crisis in early November, LayerZero initiated discussions to reclaim its stake held by Alameda. The proposed agreement involved returning the shares to LayerZero in exchange for forgiving the $45 million loan.
Another aspect of the deal related to the 100 million STG tokens, which LayerZero intended to repurchase at a discounted rate of $10 million on November 9. Yet, this transaction never materialised as LayerZero did not pay, and Alameda Ventures did not transfer the tokens.
put simply
we did indeed buy all of the tokens (back)
better is better
– RAZ & Bryan https://t.co/anBSloYRLV
— raz (@ryanzarick) November 10, 2022
FTX alleges in its lawsuit that LayerZero took advantage of Alameda Ventures during a liquidity crisis, asserting that 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.
In addition to requesting the annulment of the agreement, the lawsuit seeks the recovery of funds withdrawn shortly before FTX’s bankruptcy filing. This includes approximately $21.37 million from LayerZero Labs, $13.07 million from its former chief operating officer, Ari Litan, and $6.65 million from a subsidiary named Skip & Goose.
FTX has initiated legal action against several other companies to recoup billions in funds linked to transactions involving various subsidiaries before the collapse of its conglomerate.
We contacted LayerZero Labs for comments, but no response had been received. Importantly, it should be clarified that this lawsuit is unrelated to LayerZero Power Systems, a company that holds the LayerZero trademark and operates outside of the cryptocurrency industry.