Bankrupt FTX exchange seeks to recover $460M from SBF-backed venture capital firm
The former leading, and Bankrupt-now, crypto exchange FTX is trying to get back funds from Sam Bankman backed venture firm.
Bankrupt crypto exchange FTX is seeking to recover $460 million of allegedly misappropriated customer funds from the venture capital firm Modulo.
Modulo Capital, which received a sizable investment from FTX’s sister trading firm Alameda Research, is alleged to claw back funds. Alameda Research is said to have invested approximately $400 million in Modulo last year in 2022, as one of the biggest investments undertaken by FTX under SamBankman-Fried’s leadership.
According to the March 22 filing, FTX claimed the investment from Alameda Research was followed by the direction of Bankman-Fried, with Alameda investing a whoop of $475 million in Modulo Capital with fund transfers beginning in May 2022.
Alameda later entered into a limited partnership agreement with Modulo on June 16, as per the filling, resulting in Alameda transferring the aforementioned funds to Modulo in exchange for venture’s ownership of 20% of Modulo’s Class A shares.
From a legal view, in bankruptcy proceedings, payments made to entities prior to the bankruptcy filing may be eligible to be clawed back and redistributed to creditors with the clawback period being 90 days for most unsecured creditors, one year for insiders.
Modulo Capital has agreed to repay $404 million in cash and will give up its claim to $56 million worth of assets held on FTX’s crypto exchange, representing nearly 97% of FTX’s initial investment. The settlement will also likely to be resulting in Alameda Research losing any claim to its Modulo shares.
The motion still needs to be confirmed with a motion hearing set for April 12 by United States Bankruptcy Judge John Dorsey.
Modulo Capital was founded in March 2022 by three former executives of New York-based firm Jane Street that once employed Bankman-Fried and former Alameda CEO Caroline Ellison.
FTX exchange noted claims against it surpassed $11 billion, compared to just $4.7 billion in assets for a total shortfall of nearly $7 billion. While the $460 million settlement from Module would be a huge win for creditors it still only represents less than 7% of the current shortfall.