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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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Former President of FTX US Shares His Experience and Relationship With CEO Sam Bankman-Fried in Detailed Twitter Thread

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Former FTX US President lashes out at ‘insecure’ SBF in 49-part Twitter thread rant

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Bankruptcy

Harrison said Bankman-Fried threatened to fire him on the spot and would destroy his professional reputation if he continued to confront the former FTX CEO.

Former FTX US President Brett Harrison has lashed out at Sam Bankman-Fried for manipulating and threatening colleagues who proposed solutions to reorganize FTX US' management structure.

Harrison shared his experiences with Bankman-Fried and FTX US on Dec. 14, explaining how he was hired “casually over text” in Mar. 2021 after working together at New York-based trading firm Jane Street for a few years.

But six months into Harrison's tenure at FTX US, “cracks began to form” between the two, he said.

Despite recalling Bankman-Fried to be a “sensitive and intellectually curious person” at first, Harrison said he saw “total insecurity and intransigence” in Bankman-Fried when confronted with conflict, particularly when Harrison suggested FTX US establish separate branches for its executive, developer and legal teams.

16/49 I saw in that early conflict his total insecurity and intransigence when his decisions were questioned, his spitefulness, and the volatility of his temperament. I realized he wasn’t who I remembered.
— Brett Harrison (@BrettHarrison88) January 14, 2023

Harrison added that he “wasn’t sure what accounted for the dramatic change” in Bankman-Fried’s erratic behavior, though he suspected mental health issues may have been a "contributing factor."

Part of that irrational behavior Harrison describes included a series of gaslighting and manipulation tactics Bankman-Fried used against Harrison and other colleagues in their bid to clean up FTX US' corporate mess.

Harrison also recalled his last attempt to fix FTX US’ organization issues with Bankman-Fried, claiming that he threatened to “destroy my professional reputation” if a formally apology wasn’t received:

29/49 In response, I was threatened on Sam’s behalf that I would be fired and that Sam would destroy my professional reputation. I was instructed to formally retract what I’d written and to deliver an apology to Sam that had been drafted for me.
— Brett Harrison (@BrettHarrison88) January 14, 2023

Harrison said that event “solidified” his decision to leave.

As for the fraud charges now laid against Bankman-Fried and other FTX colleagues, Harrison said he was blinded by the firm’s alleged commingling and misuse of billions of dollars of customer funds:

“I never could have guessed that underlying these kinds of issues — which I’d seen at other more mature firms in my career and believed not to be fatal to business success — was multi-billion-dollar fraud.”

“If any one of us had suspected let alone learned the truth, we would have reported them immediately,” he added.

Bankman-Fried was granted bail after posting a $250 million bond guarantee and pleading not guilty to all eight criminal charges laid against him on Jan. 3.

Harrison stepped down as FTX US President on Sept. 27 — about five weeks before FTX catastrophically collapsed — where he stated that he moved into an advisory role.

Jane Street