Bankrupt cryptocurrency exchange FTX is seeking to recover $460 million in allegedly misappropriated customer funds from venture capital firm Modulo Capital, which received a sizeable investment from Alameda Research last year.
As previously reported, FTX’s sister trading firm, Alameda Research, is understood to have invested around $400 million in Modulo in 2022, one of the largest investments FTX has made under the leadership of Sam Bankman-Fried. In a March 22 filing, FTX claimed that Alameda Research’s investment was made at the direction of Bankman-Fried, with Alameda investing $475 million in Modulo in a series of transfers beginning in May 2022.
On June 16, Alameda entered into a limited partnership agreement with Modulo, in which Alameda transferred the aforementioned funds to Modulo in exchange for ownership of 20% of Modulo’s Class A shares, according to the filing. During bankruptcy proceedings, payments made to entities prior to filing for bankruptcy may be eligible for recovery and redistribution to creditors. The recovery period is 90 days for most unsecured creditors and one year for "insiders," a term that includes general partners.
Under the settlement, Modulo has agreed to repay $404 million in cash and will waive its claim to $56 million worth of assets held by the FTX cryptocurrency exchange, representing nearly 97 percent of FTX’s initial investment. The settlement will also result in Alameda losing any claim to its Modulo stock.
Modulo Capital was founded in March 2022 by three former executives of Jane Street, a New York-based firm that hired Bankman-Fried and former Alameda CEO Caroline Ellison.
Bankman-Fried is also reportedly in a romantic relationship with one of its founders, Zhang Xiaoyun “Lily,” which some believe was his motivation for pushing to invest in the little-known venture capital firm. The deal still needs to be confirmed by U.S. Bankruptcy Judge John Dorsey, with a motions hearing scheduled for April 12. In the latest report submitted to creditors on March 17, FTX pointed out that the claims against it exceeded US$11 billion, while the total assets were only US$4.7 billion, and the total gap was nearly US$7 billion. That's a huge win, but it still only makes up less than 7% of the current shortfall.
