- The FTX estate seeks to revert transactions worth $86M with LayerZero Labs conducted just before bankruptcy.
- Allegations of insolvency at the time of transfers make these transactions potentially fraudulent.
- LayerZero had close ties with FTX, once even accommodating their employees in the Bahamas.
FTX’s Collapse and LayerZero’s Deal
The bankruptcy of FTX, once a colossal name in the crypto world, has led to a series of litigations. The CEO, John Ray III, and the estate are vehemently challenging some last-minute deals executed by former FTX executives with LayerZero Labs. The primary point of contention is a deal struck on November 7, 2022, where Alameda Research, led by its ex-CEO Caroline Ellison, decided to sell back its 5% equity stake in LayerZero. This stake, equivalent to $150 million at current LayerZero valuations, was exchanged to write off a $45 million loan extended to Alameda by LayerZero.
Allegations of Insolvency and Fraud
The lawsuit highlights that during these transactions, FTX was already drowning in debt. Thus, such deals could be classified as fraud under bankruptcy laws. Adding more layers to the complexity, LayerZero and Alameda also discussed selling back 100 million Stargate (STG) tokens for $10 million. LayerZero, attempting to enforce the deal, almost secured the tokens before a potential lawsuit from FTX stopped them.
The Golden Days: FTX and LayerZero’s Past Ties
Not long ago, FTX and LayerZero shared a robust professional relationship. FTX had once even arranged extended stays in the Bahamas for LayerZero employees, welcoming them to high-profile events like the Super Bowl and Miami Heat games. Alameda Ventures’ investment in LayerZero in January 2022 seemed like a strategic move, strengthening this bond. LayerZero’s silence amidst the current allegations only intensifies the intrigue.
LayerZero’s Financial Withdrawals Raise Eyebrows
LayerZero’s financial activities preceding FTX’s bankruptcy have come under scrutiny. They withdrew $21 million from their FTX.com account, with a chunk of this withdrawal ($16 million) occurring at the end of October. Interestingly, the remaining $5 million was pulled out on November 7, coinciding with the day LayerZero decided to call its loan.
Legal Actions Against COO Ari Litan
The lawsuit also draws attention to Ari Litan, LayerZero’s ex-COO. Litan and his LLC, Skip & Goose, withdrew around $19.6 million from FTX.US just before its bankruptcy. These transactions, termed as “preferential transfers,” might be subject to reversal as per the Bankruptcy Code. The aggressive stance of the FTX estate has been evident in their series of lawsuits, all aimed at salvaging funds for its creditors.
Conclusion
The unfolding drama between FTX estate and LayerZero Labs provides a glimpse into the chaotic world of crypto-businesses and their intricacies. As allegations fly and millions hang in balance, the crypto community awaits the outcome, which might set precedents for future corporate disputes in the blockchain universe.
