Bankrupt crypto exchange FTX has filed a lawsuit against cross-chain protocol LayerZero Labs, seeking to recover $21 million in funds that were allegedly illegally withdrawn prior to FTX’s shutdown in November.
The case traces back to transactions made from January to May 2022 between Alameda Ventures — the venture capital arm of Alameda Research, FTX’s sister company — and LayerZero.
According to court documents filed on Sept. 9, Alameda Ventures paid more than $70 million in two transactions to acquire a stake of roughly 4.92% in LayerZero. Also, in March, Alameda Ventures paid another $25 million for 100 million STG tokens at a public auction, to be distributed over a period of six months beginning in March 2023.
Super excited to work with @LayerZero_Labs!— SBF (@SBF_FTX) March 30, 2022
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
Amid these transactions, in February, LayerZero loaned $45 million to Alameda Ventures’ parent, Alameda Research, under a promissory note bearing an annual interest rate of 8%.
When FTX’s crisis unfolded in early November, LayerZero sought a deal for the return of its stake owned by Alameda. The agreement included the return of shares to LayerZero in exchange for the forgiveness of the $45 million loan. Another deal related to 100 million STG tokens was also reached, which LayerZero purchased back at a discount for $10 million on Nov. 9. This transaction, however, was never completed. LayerZero did not pay for the tokens, and Alameda Ventures did not transfer the tokens.
put simply— raz (@ryanzarick) November 10, 2022
we did indeed buy all of the tokens (back)
better is better
- RAZ & Bryan https://t.co/anBSloYRLV
FTX alleges in the lawsuit that LayerZero exploited Alameda Ventures during a liquidity crisis:
“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In addition to cancellation of the agreement, the complaint seeks recovery of funds withdrawn days before FTX bankruptcy filing, including approximately $21.37 million from LayerZero Labs, as well as $13.07 million from Ari Litan, its former chief operating officer, and $6.65 million from a subsidiary, Skip & Goose.
LayerZero Labs isn’t the first company to be sued by FTX. The bankrupt company is also attempting to recoup billions in funds from transactions made by a number of subsidiaries before the collapse of its conglomerate.
Cointelegraph reached out to LayerZero Labs, but did not receive a response at the time of publication. The lawsuit is not related to LayerZero Power Systems, a company that owns the LayerZero trademark and does not operate in the crypto industry.