FTX sues LayerZero over alleged illicit fund withdrawals. Details inside…

• FTX sues LayerZero Labs to recover $21 million in allegedly illicitly withdrawn funds before FTX’s closure.
• LayerZero CEO refutes claims, calls the lawsuit baseless, and expresses willingness to resolve the matter in court.

The troubled cryptocurrency exchange FTX [FTT] took legal action against the cross-chain protocol LayerZero Labs, aiming to recover $21 million in allegedly illicitly withdrawn funds prior to FTX’s closure in November.

Realistic or not, here’s FTT’s market cap in BTC’s terms

Back from the dead

The dispute traces back to transactions conducted between Alameda Ventures and LayerZero from January to May 2022. Alameda Ventures, the venture capital arm of Alameda Research and FTX’s sister company, made payments exceeding $70 million to acquire a 4.92% stake in LayerZero. Additionally, they paid $25 million for 100 million STG tokens at a public auction in March, to be distributed over six months starting in March 2023.

During the course of these transactions, LayerZero loaned $45 million to Alameda Ventures’ parent company, Alameda Research, in February, with an 8% annual interest rate.

FTX alleges that LayerZero took advantage of Alameda Ventures during a liquidity crisis. The lawsuit aimed at canceling the agreement and the recovery of funds withdrawn just before FTX’s bankruptcy filing, including approximately $21.37 million from LayerZero Labs, $13.07 million from former COO Ari Litan, and $6.65 million from subsidiary Skip & Goose.

LayerZero strikes back

LayerZero’s CEO Bryan Pellegrino responded to the lawsuit, asserting that it contains unfounded claims. He mentioned ongoing communication with FTX liquidators for nearly a year to address shared ownership concerns, with no response.

Pellegrino disputed allegations of having preferential information about withdrawals, highlighting significant deposits made near FTX’s bankruptcy. He clarified that most withdrawals were for standard business purposes. These included managing gas demands, rather than panic-driven actions based on insider information.

Pellegrino also noted their efforts to repurchase STG tokens, which met resistance from FTX. He expressed disappointment in the estate resorting to mudslinging and expressed readiness to resolve the matter in court.

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FTX recently made headlines due to speculation about liquidating its recovered crypto assets in the coming week, primarily consisting of SOL, ETH, and BTC. Despite initial concerns, experts believe the liquidation may not significantly impact these currencies.