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FTX seeks to claw back $460M from Bankman-Fried-backed VC firm

March 23, 2023 Coin Telegraph

FTX seeks to claw back 0M from Bankman-Fried-backed VC firm

$460M

While the funds represent a small portion of FTX’s overall asset shortfall, the settlement means the firms can avoid a costly legal battle.

Bankrupt crypto exchange FTX is seeking to recover $460 million of allegedly misappropriated customer funds from venture capital (VC) firm Modulo Capital, which received a sizeable investment from Alameda Research last year.

As previously reported, FTX’s sister trading firm, Alameda Research was understood to have invested around $400 million in Modulo in 2022 — one of the biggest investments undertaken by FTX under Bankman-Fried’s leadership.

In a March 22 filing, FTX claim the investment from Alameda Research was under the direction of Sam 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, according to the filing, which resulted in Alameda transferring the aforementioned funds to Modulo in exchange for ownership of 20% of Modulo’s Class A shares.

In bankruptcy proceedings, payments made to entities prior to the bankruptcy filing may be eligible to be clawed back and redistributed to creditors. While the claw-back period is 90 days for most unsecured creditors, it is one year for “insiders,” a term that includes general partners.

As per the settlement agreement, Modulo has agreed to repay $404 million in cash and will give up its claim to $56 million worth of assets held on FTX’s crypto exchange, representing nearly 97% of FTX’s initial investment.

FTX is settling with Modulo Capital for $460 million.

First big "clawback". pic.twitter.com/JNHn2bhNLb
— FTX 2.0pium (FTX Creditor) (@AFTXcreditor) March 22, 2023

The settlement would also result in Alameda losing any claim to its Modulo shares.

Modulo Capital was founded in March 2022 by three former executives at Jane Street, a New York-based firm that once employed Bankman-Fried and Alameda CEO Caroline Ellison.

Bankman-Fried is also rumored to have been in a romantic relationship with one of its founders, Xiaoyun “Lily” Zhang, which some have theorized was the motivation behind his push to invest in the obscure VC firm. This rumor has not been verified.

Bankman-Fried's girlfriend? Xiaoyun "Lily" Zhang, used to be romantically involved with Bankman-Fried, according to four people familiar with their relationship. her partner, Duncan Rheingans-Yoo, had only graduated from Harvard two years before SBF's investment. That's textbook
— 9:29 (@GuitarSunCat) January 25, 2023

The deal will still need to be confirmed by United States Bankruptcy Judge John Dorsey, with a motion hearing set for April 12.

In its latest presentation to creditors on March 17, FTX noted claims against it surpassed $11 billion, compared to just $4.7 billion in assets for a total shortfall of nearly $7 billion, so while the $460 million settlement would be a huge win for creditors it still only represents less than 7% of the current shortfall.

*FTX’s summary of claims vs assets in a presentation to creditors. Source:* *Kroll*

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SEC not allowed to punish Voyager advisers over bankruptcy token, says US judge

March 7, 2023 Coin Telegraph

Bankruptcy Filing

The SEC claims the transactions involved with redistributing the funds to impacted Voyager account holders will trigger U.S. securities laws.

The United States Securities Exchange Commission (SEC) won’t be allowed to fine executives involved in Voyager Digital should it end up issuing bankruptcy tokens to help repay impacted customers, bankruptcy judge Michael Wiles has said.

The comments from Wiles came on Mar. 6, the third day of hearings regarding a plan by Voyager to issue a repayment token and sell $1 billion of assets to Binance.US.

The SEC earlier argued that the repayment token would constitute an unregistered security offering, while Binance.US is operating an unregulated securities exchange.

In a supplemental objection statement, it also objected to a legal protection which stated that no U.S. agency, including the SEC, will be able to bring “any claim against any Person on account of or relating to the Restructuring Transactions.”

Essentially, this means that executives and restructuring advisers involved in Voyager’s bankruptcy would be shielded from lawsuits if they implement the bankruptcy plan, as long as it is court-approved.

*The SEC’s Mar. 6 supplemental objection statement to Voyager’s Chapter 11 Restructuring Plan. Source: Stretto.*

While the SEC described these provisions as “extraordinary” and “highly improper,” Wiles explained that giving the SEC such authority would “leave a sword hanging over the heads of anybody who’s going to do this transaction,” according to a Mar. 6 Bloomberg report, stating:

“How can a bankruptcy case or any court proceeding function with that kind of suggestion?”

SEC lawyer Therese Scheuer argued however that the legal protections are so broad that Voyager employees and lawyers would have permission to violate securities laws. After debate, Voyagers lawyers agreed to narrow the scope of legal releases, according to Bloomberg.

The trading platform officially filed for bankruptcy on Jul. 5 in an attempt to restructure the firm and “return value” back to over 100,000 customers.

The court has been considering a restructuring plan to bring Voyager out of Chapter 11 bankruptcy which would first announced on Dec. 19.

The plan would see crypto exchange Binance.US acquire its assets for $1.02 billion — an option Voyager said at the time represented the “highest and best bid for its assets.”

The SEC objected to the sale on Feb. 22, claiming aspects of the restructuring plan could breach securities laws. The regulator was then criticized over its ambiguous reasoning for the objection in a Mar. 2 court hearing.

A Feb. 28 court filing found that 97% of 61,300 polling Voyager account holders were in favor of the current Binance.US restructuring plan.

creditors