Bankrupt cryptocurrency exchange FTX has initiated a lawsuit against LayerZero Labs, a cross-chain protocol, aiming to recover $21 million in funds that were allegedly unlawfully withdrawn before FTX's shutdown in November.
The legal dispute traces its roots back to transactions that occurred between Alameda Ventures, the venture capital division of FTX's sister company Alameda Research, and LayerZero during the period from January to May 2022.
According to court documents filed on September 9, Alameda Ventures conducted transactions worth over $70 million to acquire roughly 4.92% of LayerZero. Furthermore, in March, an additional $25 million was paid by Alameda Ventures for the acquisition of 100 million STG tokens in a public auction. These tokens were scheduled for distribution over a six-month period commencing in March 2023. Among these transactions, LayerZero extended a $45 million promissory note to Alameda Research, Alameda Ventures' parent firm, in February. This note bore an annual interest rate of 8%.
As the FTX crisis unfolded in early November, LayerZero aimed to arrange a deal for returning Alameda's stake. This agreement involved returning the shares to LayerZero in exchange for forgiving the $45 million loan. Another arrangement related to the 100 million STG tokens was also negotiated, with LayerZero agreeing to repurchase these tokens at a $10 million discount on November 9. However, the deal was never completed, as LayerZero did not make payment for the tokens, and Alameda Ventures did not transfer them.
FTX's lawsuit alleges that LayerZero took advantage of Alameda Ventures' liquidity crisis during negotiations:
"LayerZero was well aware that Alameda Research was facing a liquidity crisis and negotiated a markdown deal with Alameda Research’s then-CEO Caroline Ellison within approximately 24 hours."
The lawsuit doesn't stand alone; FTX is also pursuing the recovery of billions of dollars from transactions conducted by various subsidiaries before the group's collapse.
It's important to note that this lawsuit has no relation to LayerZero Power Systems, which owns the LayerZero trademark but is not involved in the cryptocurrency sector.
