FTX pursuing $460m from SBF-backed Modulo Capital

Amid SVB’s collapse, the defunct cryptocurrency exchange FTX is suing the venture capital company Modulo Capital, which got a significant investment from Alameda Research last year.

The lawsuit seeks to recover $460 million in client monies that FTX is said to have improperly taken. Due to the settlement, both companies can avoid an expensive legal struggle; nonetheless, the monies only account for a minor percentage of FTX’s total asset deficiency.

During the procedures of a bankruptcy case, payments that were paid to entities previous to the filing of the bankruptcy case may be eligible to be reclaimed and redistributed to creditors.

The clawback time for most unsecured creditors is set at ninety days, but for “insiders,” which is a word that includes general partners, it is set at one year.

Three executives who had previously worked at Jane Street, a New York-based company that had previously hired both Sam Bankman-Fried (SBF) and former Alameda CEO Caroline Ellison, established Modulo Capital in March 2022.

Some people believe that SBF was in a romantic relationship with one of the company’s founders, Xiaoyun “Lily” Zhang, who drove his decision to invest in the less well-known venture capital firm. This theory is based on the fact that it has been reported that SBF was involved in the relationship.

Alameda was the transactions’ hub

Alameda Research, FTX’s sister trading business, is believed to have invested around $400 million in Modulo in 2022. This was one of the most significant investments that FTX made when SBF was in charge of the company.

In a document dated March 22, FTX said that the investment from Alameda Research was made at the instruction of SBF, with Alameda putting $475 million in Modulo in a sequence of transfers commencing in May 2022

The filing states that, on June 16, Alameda entered a limited partnership act with Modulo. As a result of this agreement, Alameda transferred the previously mentioned monies to Modulo in exchange for ownership of 20% of Modulo’s Class A shares. This transaction was recorded as having taken place.

Modulo to relinquish assets at FTX as part of the settlement

According to the terms of the settlement deal, Modulo has agreed to pay back $404 million in cash and would relinquish its claim to assets worth $56 million that were stored on FTX’s cryptocurrency exchange. This amounts to roughly 97% of FTX’s original investment.

As part of the settlement, Alameda would also give up any claim to the Modulo shares it previously held.

The agreement will still have to be approved by the United States bankruptcy Judge John Dorsey, and a hearing on a request to approve the agreement has been scheduled for April 12.