FTX attempts to recoup $460M from a VC firm financed by Bankman-Fried

By: Michael Wilson

March 23, 2023 5:22 AM

While the settlement amount is relatively tiny in comparison to FTX's asset shortage, it allows the companies to avoid a potentially expensive judicial struggle.

FTX, a defunct cryptocurrency exchange, has filed a claim against Modulo Capital, a VC firm that received a sizable investment from Alameda Research in 2018, for $460 million in customer assets that were allegedly misused.

Among the largest investments made by FTX while Bankman-Fried was in charge was a rumored $400 million bet on Modulo in 2022 by FTX's sister trading firm, Alameda Research.

According to a document filed by FTX on March 22nd, Alameda Research, led by Sam Bankman-Fried, will invest $475 million in Modulo over a period of time commencing in May 2022.

According to the filing, Alameda transferred the aforementioned funds to Modulo on June 16 as part of a limited partnership agreement between the two companies in exchange for 20% of Modulo's Class A shares.

Payments made to entities previous to the bankruptcy filing may be eligible for clawback and redistribution to creditors in bankruptcy proceedings. While most unsecured creditors have a 90-day claw-back time, "insiders," which include general partners, have a one-year period.

Modulo has agreed to reimburse $404 million in cash and relinquish its claim to $56 million in assets stored on FTX's crypto exchange as part of the terms of the settlement agreement. This amounts to approximately 97% of FTX's initial investment.

If the deal goes through, Alameda will also give up all rights to its Modulo stock.

Three former executives from Jane Street, a New York-based firm where Bankman-Fried and Alameda CEO Caroline Ellison had worked, established Modulo Capital in March 2022.

Bankman-Fried is said to have been romantically involved with one of its founders, Xiaoyun "Lily" Zhang, and this may have prompted him to invest in the small VC business. This rumor has not been confirmed in any way.

U.S. Bankruptcy Judge John Dorsey still needs to approve the agreement; a hearing on the matter is scheduled for April 12.

Even though the $460 million settlement would be a big success for creditors, it still still represents less than 7% of the current shortfall, as FTX reported on March 17 that claims against company topped $11 billion, compared to just $4.7 billion in assets.

Presentation to creditors summarizing FTX's claims and assets. Source: Kroll