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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DOJ and SEC to probe SVB collapse and insider stock sales: Report

March 15, 2023 Coin Telegraph

Coin Telegraph

The investigations are separate from one another but will both look into Silicon Valley Bank's collapse and stocks sold by executives prior to its fall.

The United States Justice Department and the Securities Exchange Commission have reportedly launched inquiries into the sudden collapse of Silicon Valley Bank, which was shuttered by regulators last week amid a historic bank run.

According to “people familiar with the matter” — as cited in a March 14 report by The Wall Street Journal — the probes will look into events that led to the bank's collapse, along with the stock sales that SVB financial officers undertook in the weeks leading up to the closure.

Securities filing show the bank’s CEO, Greg Becker, and chief financial officer, Daniel Beck, sold shares two weeks before the bank’s failure, sparking outrage from some observers.

Becker sold $3.6 million worth of shares on Feb. 27, while Beck sold $575,180 in stocks that same day, according to Newsweek. In total, SVB executives and directors cashed out $84 million worth of stock over the past two years, CNBC reported.

The probes are, however, in the early stages and may not lead to charges or allegations of wrongdoing, the sources said.

Another person with direct knowledge of the situation, quoted by NPR, said a formal announcement from the Justice Department is expected in the coming days.

Cointelegraph contacted the SEC and the Justice Department but did not receive an immediate response.

We must get a full accounting of what happened and why so those responsible can be held accountable.

In my Administration, no one is above the law.
— President Biden (@POTUS) March 13, 2023

Only two days after the collapse of Silicon Valley Bank, SEC Chairman Gary Gensler made a stark warning that the regulator would be on the lookout for violators of U.S. securities laws.

“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” said Gensler.

The U.S. Federal Reserve is also looking into the collapse of the bank in its own way — namely, how it supervised and regulated the now-collapsed financial institution.

Meanwhile, on March 13, SVB Financial Group and two executives were reportedly sued by shareholders accusing them of failing to disclose how rising interest rates would leave the bank “particularly susceptible” to a bank run.

The lawsuit seeks damages for SVB investors from June 16, 2021 to March 10, 2023.

Major media outlets demand identities of SBF’s $250M bond guarantors

January 13, 2023 Coin Telegraph

<div>Major media outlets demand identities of SBF's 0M bond guarantors</div>

associated press

The media’s lawyers argued the public’s right to know Bankman-Fried's sureties outweighed their privacy and safety rights, but Bankman-Fried’s lawyers strongly disagreed.

Eight major media companies including Bloomberg, The Financial Times and Reuters have demanded public disclosure of the two individuals responsible for guaranteeing FTX former CEO Sam Bankman-Fried's $250 million bond.

In a Jan. 12 letter addressed to New York District Court Judge Lewis Kaplan, attorneys from Davis Wright Tremaine LLP — acting on behalf of the media giants — argued that “the public’s right to know Bankman-Fried's guarantors outweighed their privacy and safety rights.”

Media organizations looking to persuade the judge to unseal the identities of Bankman-Fried's guarantors include the Associated Press, Bloomberg, CNBC, Dow Jones, The Financial Times, Insider and the Washington Post.

In making their case, the media’s lawyers used case precedent from Ghislaine Maxwell’s Dec. 2020 case — where the bond guarantors' names weren’t revealed — to argue that Sam Bankman-Fried’s financial crimes were not as serious as Maxwell’s involvement in Jeffery Epstein’s child sex traffic ring scandal:

"While Mr. Bankman-Fried is accused of serious financial crimes, a public association with him does not carry nearly the same stigma as with the Jeffrey Epstein child sex trafficking scandal.”

According to a Jan. 12 report from Reuters, Bankman-Fried’s lawyers previously argued that Bankman-Fried's sureties should be kept under wraps as Joseph Bankman and Barbara Fried — the parents and co-signers of Bankman-Fried’s $250 million bond — have received ongoing physical threats since FTX's catastrophic collapse in early November.

If the guarantor’s names were revealed, there would be a “serious cause for concern” for the safety and welfare of those two people, Bankman-Fried’s lawyers argued.

On Jan. 3, Bankman-Fried pleaded not guilty against all eight criminal charges related to the shock collapse of his former cryptocurrency exchange FTX, which includes wire fraud and violations of campaign finance laws among other charges.

Insider