Alameda Files a $446 Million lawsuit Against Voyager To Get Back Its Loan Repayments

Updated: 02 February 2023

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The year 2022 had been a tragic one for the crypto industry. From investors losing money due to the sudden crash of crypto projects (like Terra USD) to the continuous hike in interest rates to the shutting down of various crypto exchanges (like FTX), the crypto market lost all the momentum it had gained in the past years. A few such tragic events have been able to follow the crypto market to 2023.

The dispute between Alameda Research (a sister company of FTX) and Voyager (a crypto lending company), which has been making headlines lately, could be said to be one such example. Alameda research is a crypto trading firm which went bankrupt last November following FTX’s crash. In a recent turn of events, the crypto trading firm has filed a suit against Voyager to seek almost $446 million, which it had paid earlier in loan repayments.

The lawsuit was filed by FTX’s legal counsel, who is representing Alameda research in front of the U.S. Bankruptcy Court in Delaware. All three companies, despite being very huge in the past, had to file for bankruptcy in 2022. The legal battle between the two firms has brought to the surface a lot of information regarding their operations.

What Is The Lawsuit All About?

Voyager, because of its reckless lending and the overall crypto market crash, was faced with the situation of declaring bankruptcy. It had to file for bankruptcy in July 2022 due to loan defaults of more than a hundred million dollars by Three Arrows Capital.

FTX, which had borrowed about $446 million from Voyager, made loan repayments worth $249 million in September and $194 million in October, along with $3.2 million, which was paid in the form of interest in August. However, just a month after making the loan repayment, FTX (along with its sister company) had to declare chapter 11 bankruptcy in the month of November.

After realizing their own obligations to pay its creditors back, FTX and Alameda Research demanded the $446 million to be paid back to them as they went bankrupt shortly after paying back their debt to Voyager.

What Gives Legitimacy To Alameda’s Claims?

Alameda’s (and FTX’s) legal side puts forward the argument that they are obliged to receive money from Voyager as per sections 503 and 507 of the Bankruptcy code. Sections 503 and 507 of the Bankruptcy Code tilt the scale in favour of Alameda and FTX. Upon declaring bankruptcy, a company is still left to pay off its debts (especially the ones it has to bear post-petition). In the above dispute, FTX’s legal team has come up with a good argument to get back half a billion worth of loan repayments from Voyager.

Voyager and its creditors’ committee, however, have argued that the claims of the wrongdoer (here, Alameda) should be subordinated to the interests of other creditors to make sure that the wrongdoer is not rewarded.

Voyager Acting As A Feeder Fund

To support their claims, the counsel for FTX and Alameda have alleged Voyager’s business model resembles that of a “feeder fund”. They point out that the crypto lender was involved in the practice of borrowing money from investors and investing the same “with little or no due diligence” in crypto trading firms like Alameda and Three Arrows Capital.

After concurring with the previous allegation that Alameda had been secretly using FTX’s deposits worth billions of dollars (discovered from the investigation), they went on to allege that Voyager, along with other crypto lenders, played an active role in the same.

Voyager’s Failed Acquisition By FTX

Once among the biggest crypto exchanges in the world, FTX was set to acquire the crypto lending firm. It was, for this reason, the crypto exchange readily paid the money it owed to Voyager. FTX sought to acquire the crypto lender for $1.4 billion.

However, the acquisition procedure was put on a halt by the Texas State Securities Board (TSSB). Upon further investigation by the authorities to find out whether the crypto exchange was complying with U.S. law, the company was found to be misappropriating their customers’ deposits (worth billions). This led to a massive surge in customer withdrawals which further forced the crypto exchange to file for bankruptcy on 11th November.

This is how FTX, a multi-billion dollar exchange, went from making a billion-dollar acquisition to filing for bankruptcy, all within a month.

Voyager’s Recent Binance US Takeover

Voyager, despite not being able to secure a successful acquisition deal with FTX because of the latter’s bankruptcy, has agreed to sell its assets to Binance US for $1 billion. The deal has also received initial approval from the court. However, Voyager still has to address the security concerns of various stakeholders like the Securities and Exchange Commission (SEC).

Voyager’s legal team has agreed to address all securities issues that were raised by the U.S. Committee on Foreign Investment in the United States (CFIUS). The CFIUS is responsible for carefully monitoring all the foreign investments that flow into U.S. companies.

Conclusion

Voyager would be liable to pay $446 million to Alameda if the latter is able to win the lawsuit in the U.S. bankruptcy court of Delaware. This would force the former crypto lender in a situation where it will have to use almost half of the funds it would receive from Binance US to settle the lawsuit. However, it would too early to get to any conclusion as the court’s decision might go either way.