The FTX Estate Files Lawsuit Against LayerZero Labs Over Pre-Bankruptcy Deals
The FTX estate, led by CEO John Ray III, has initiated legal proceedings against LayerZero Labs, a cross-chain swap protocol builder, in an effort to undo a series of deals made by former FTX executives just before the company’s bankruptcy. The lawsuit primarily revolves around a deal made by former Alameda Research CEO Caroline Ellison with LayerZero Labs on November 7, 2022. As part of the agreement, Alameda sold its 5% equity stake in LayerZero, valued at $150 million, in exchange for the forgiveness of a $45 million loan. The lawsuit argues that these transactions constitute fraud under the bankruptcy code since FTX was already insolvent at the time.
In addition, the lawsuit seeks to retrieve withdrawals made by LayerZero and its former COO Ari Litan from FTX.com and FTX.US exchanges in the 90 days preceding the bankruptcy filing. LayerZero withdrew $21 million from FTX.com, with $16 million withdrawn by the end of October and the remaining $5 million on November 7. The suit also questions approximately $19.6 million in withdrawals from FTX.US accounts made by Litan and his LLC, Skip & Goose, shortly before the bankruptcy filing. The FTX estate has been taking legal action against various entities to recover funds for its creditors.
Hot Take
The FTX estate’s lawsuit against LayerZero Labs highlights the efforts being made to reverse questionable transactions made prior to the company’s bankruptcy. This case raises important questions about the legality and ethics of such deals, particularly when a company is already insolvent. It also underscores the challenges faced by cryptocurrency companies in navigating complex financial situations. As the legal battle unfolds, it will be interesting to see how the court determines the validity of these transactions and the potential impact on the bankruptcy estate and its creditors.
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