The chapter property of FTX filed its newest lawsuit on Friday as a part of its try to make clients complete, suing the crypto change Bybit for practically $1 billion.
After FTX collapsed in November 2022 below Sam Bankman-Fried, the brand new management stewarded by John J. Ray III has sought to claw again funds from insiders, clients, and recipients of FTX’s investments. Friday’s lawsuit represents one of many largest claims as a part of the chapter proceedings.
VIP standing
Earlier than its chapter, FTX was one of many largest crypto exchanges on this planet, with a lot of main merchants counted among the many firm’s shoppers, together with Alameda—the buying and selling arm of FTX led by Bankman-Fried’s one-time girlfriend, Caroline Ellison.
One other energetic dealer on FTX was Mirana, the funding arm of Bybit, presently the sixth-largest cryptocurrency spot change by quantity.
Based on the lawsuit, Mirana’s giant account stability on FTX—which hovered round $850 million in November 2022—afforded it particular privileges on the platform relative to common FTX clients, together with concierge assist and elevated entry to workers.
FTX’s therapy of most popular merchants was on the coronary heart of fraud fees introduced by the Division of Justice in opposition to Bankman-Fried and his interior circle, with prosecutors arguing that Alameda was in a position to make use of different clients’ funds for its personal functions, together with enterprise investments and actual property purchases. A jury in a New York federal court docket discovered Bankman-Fried responsible of all counts earlier this month.
Whereas Mirana didn’t have entry to different clients’ funds, it did obtain VIP therapy. Based on the lawsuit filed in a Delaware chapter court docket, Mirana—together with its affiliated entities and senior workers—rushed to withdraw belongings from its FTX accounts in November 2022 as questions across the change’s solvency intensified.
Due to Mirana’s most popular standing, Bybit’s funding arm was in a position to prioritize its withdrawal requests, lowering the funds accessible to different clients. The lawsuit additionally alleges that FTX held belongings on Bybit, permitting Bybit to grab these funds and use them as leverage to power FTX to prioritize its withdrawals.
By way of this course of, Mirana was in a position to withdraw practically $500 million of its digital belongings from FTX within the ultimate days earlier than FTX disabled withdrawals. The chapter property additional alleges that Bybit has refused to permit FTX to reclaim the $125 million nonetheless held in Bybit accounts and has used an “ostensibly independent entity” known as BitDAO to devalue tens of hundreds of thousands of {dollars} of cryptocurrency tokens held by FTX.
Bybit and Alameda had agreed to a token swap in October 2021, the place Alameda acquired 100 million tokens native to the BitDAO venture in change for round 3.4 million of FTX’s native token, FTT. FTX alleges that in Might 2023, Bybit sought to reverse the commerce. After FTX refused, BitDAO introduced it might rebrand the venture and alter the construction of the tokens, together with proscribing FTX’s potential to redeem its BitDAO tokens.
The FTX chapter property is searching for to claw again belongings it values at $953 million from Bybit, in accordance with pricing as of Nov. 1, 2023.
Representatives from Bybit didn’t instantly reply to a request for remark from Fortune.
‘A complete failure’
Ray, the steward of the Enron chapter, took over FTX in November 2022. Showing earlier than Congress in December, he declared that he had by no means seen such a “complete failure” of company management.
The FTX chapter property has launched a lot of lawsuits to get well billions in buyer funds, together with in opposition to the mother and father of Bankman-Fried, alleging that they had been “siphoning” hundreds of thousands of {dollars} for his or her “own personal benefit.”
In one other lawsuit from July, FTX sought to claw again a whole bunch of hundreds of thousands of {dollars} from former insiders, together with Bankman-Fried, former FTX CTO Gary Wang, former FTX head of engineering Nishad Singh, and Ellison.
The chapter proceedings are among the many most complicated in U.S. monetary historical past, as Ray seeks to unwind a knotted mess from Bankman-Fried’s crypto empire that was entangled with most of the main exchanges and lenders within the area, together with Binance, Bybit, and Digital Forex Group.
Ray can be searching for to discover a purchaser to relaunch the failed change, with the bidding course of reportedly down to a few finalists, together with an organization run by the previous president of the New York Inventory Trade.