FTX Sues LayerZero Labs To Recover $85 Million Transferred Amid Its Implosion, Alleges Firm Took Advantage Of Crisis

Updated: 11 September 2023

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Bankrupt crypto exchange FTX is suing LayerZero Labs to recover funds that exited its coffers just prior to its collapse.

The defunct exchange is trying to undo a $45 million deal it entered into as it was starting to implode and to recover $40 million in withdrawals from FTX made by LayerZero in the three months until its bankruptcy.

The lawsuit argues that the sequence of transactions took place when FTX was already in financial crisis.

”LayerZero took advantage of the FTX Group’s desperate need for cash to effect the fraudulent and preferential transfers,” it said.

The FTX estate contends that the deals should be reversed for the benefit of the bankrupt estate and says they are fraudulent under the bankruptcy code.

Super excited to work with @LayerZero_Labs!

They're building out a key missing piece of crypto infrastructure–cross-chain liquidity.

And more importantly, they're doing a great job of building great products. https://t.co/TvEC6sfpeE

— SBF (@SBF_FTX) March 30, 2022

Close Ties and Misappropriation

The lawsuit also alleges that the transactions ventured into with LayerZero by FTX affiliate Alameda Research were entered because its CEO, Caroline Ellison, and employees from FTX Group had strong personal friendships with the founders of LayerZero and its employees.

“The FTX Group arranged for accommodations for several months in the Bahamas for a dozen LayerZero employees and their families and dogs,”,the lawsuit stated. “The FTX Group also hosted nearly two dozen LayerZero employees and their family members at a 2022 Super Bowl party and arranged for LayerZero employees to receive tickets to various events, including a Miami Heat basketball playoff game.”

The lawsuit is also seeking to recover funds withdrawn from FTX.com and FTX.US exchanges by LayerZero and former COO Ari Litan in the 90 days before FTX’s bankruptcy filing.

During this period, LayerZero withdrew a substantial $21 million from its FTX.com account. About $16 million of that was withdrawn before FTX’s financial problems became widely known at the end of October and the remaining $5 million on November 7, the day LayerZero called its loan.

LayerZero responded to the lawsuit by saying it is ‘filled with unsubstantiated claims’

Regarding the FTX suit, the entire suit is filled with unsubstantiated claims. We have been in communication with the FTX liquidators for almost a year now and have time and time again attempted to proactively address the issue of ownership of the shares with them and have been…

— Bryan Pellegrino (臭企鹅) (@PrimordialAA) September 11, 2023

FTX Estate’s Ongoing Legal Efforts to Recover Funds

The FTX estate has been actively pursuing legal action against various companies and individuals in recent weeks. Their goal is to recover funds on behalf of their creditors, following the tumultuous collapse of the FTX exchange.

A document filed on August 31 includes details of substantial contributions to organizations like MLB, the Miami Heat, and the Golden State Warriors from the NBA. It also mentions payments to entities including Coachella, Gamestop, and Kevin O’Leary. Payments were also made to sports figures including Shaquille O’Neal, Naomi Osaka, David Ortiz, and Trevor Lawrence.