FTX Sues LayerZero Labs To Recover Over $21 Million Transferred On Eve Of Bankruptcy

Bankrupt crypto exchange FTX has taken legal action against its former partner, LayerZero Labs, a blockchain infrastructure company, to recover $21 million in funds that were allegedly illegally withdrawn before FTX’s closure in November last year.

According to court documents filed on Sept. 9, the exchange accused LayerZero Labs of wrongdoing related to transactions between Alameda Research’s VC arm, Alameda Ventures, and LayerZero from January to May 2022. Alameda Research is the sister company of FTX exchange.

Alameda Ventures paid over $70 million in two transactions to obtain a roughly 4.92% stake (worth $150 million according to LayerZero Labs’ current valuation) in LayerZero, according to the document. It also paid another $25 million to buy $100 million of LayerZero’s Stargate (STG) tokens in March 2022.

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

Moreover, LayerZero loaned $45 million to Alameda Research on February 14 under a promissory note with an annual interest rate of 8%.

In early November, when FTX was in trouble, LayerZero tried to buy back its shares from Alameda. The agreement involved giving shares back to LayerZero in exchange for forgiving the $45 million loan. Another deal involving 100 million STG tokens was also made, and LayerZero bought them back at a discounted price of $10 million on November 9th.

However, this transaction never took place. Alameda Ventures did not transfer the tokens, and LayerZero did not pay for 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 Aims To Recover Pre-Crisis Funds

The complaint not only wants the cancellation of the contract but also the recovery of funds withdrawn days before FTX’s bankruptcy. 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, Skip & Goose.

FTX claims in the lawsuit that LayerZero took advantage of 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.”

The company said LayerZero Labs’ withdrawal caused considerable losses to the exchange and its users. It impacted the liquidity and reliability of the platform. 

LayerZero Labs hasn’t replied to the lawsuit or the accusations yet. FTX has also filed lawsuits against other companies before LayerZero Labs to recover billions of dollars in funds from transactions carried out by several subsidiaries before the collapse.