FTX sues LayerZero, seeks $86 million

FTX filed a lawsuit against LayerZero Labs, the company behind the omnichain protocol, seeking to recover $86 million.

The plaintiff intends to unwind a series of $45 million transactions entered into by the platform’s former executives on the eve of the company’s bankruptcy.

The claim concerns a deal between former Alameda Research CEO Caroline Ellison and LayerZero Labs on November 7, 2022 — four days before the restructuring filing.

Under the arrangements, the market maker agreed to buy back her 5% stake in the infrastructure project — valued at $150 million at current valuation — in exchange for LayerZero Labs forgiving a $45 million loan it had extended to Alameda.

According to the suit, at that time the FTX group was already insolvent. For this reason, under the bankruptcy code the transactions are fraudulent and should be reversed, with assets to be included in the bankruptcy estate.

The claims also concern the deal in which Alameda sold LayerZero its 100 million Stargate (SG) utility tokens for $10 million. Alameda had spent $25 million on these.

The transaction was not completed, despite LayerZero Labs’ attempts to gain control of the tokens.

The suit states that the firm attempted to reissue the assets and move them to its own wallet, but abandoned the plan due to the threat of litigation by FTX.

Also among the platform’s demands to LayerZero is the return of $40 million that were withdrawn by LayerZero and former Chief Operating Officer Ari Litman from the exchange’s accounts and its U.S. subsidiary’s accounts in the 90 days before the bankruptcy filing.

During that period the infrastructure firm transferred $21 million from an account on FTX.com, with about $16 million of this amount moved before the platform’s problems became widely known.

The remaining $5 million was withdrawn on November 7 — the same day LayerZero pulled the loan, the suit says.

Also named as a defendant in the filing is Litman himself and the entity Skip & Goose. The exchange disputed the withdrawal of $19.6 million by that entity days before the bankruptcy filing.

According to the plaintiff, the two companies once had close ties: the FTX Group once housed LayerZero employees for several months in the Bahamas, and invited them to Super Bowl parties and a Miami Heat playoff game.

Alameda Ventures first invested in the omnichain protocol team in January 2022.

Co-founder and CEO of LayerZero Labs Bryan Pellegrino called the claims ‘baseless’. The executive said the firm had been actively trying to resolve the issue of owning its shares with FTX’s liquidators, but they ignored it.

“This makes me think that the goal is not to settle the problem, but merely to drag out the process in the hope of obtaining more legal costs,” — the executive said.

In a statement, Pellegrino said the withdrawal was used by the firm to fund routine operations, and not in some panic to seize assets based on asymmetric information.

“We did not know at all whether FTX was insolvent at the time,” — he stressed.

In June 2023 the current management team said they had returned liquid assets totaling about $7 billion.

In May FTX filed a suit against Genesis seeking to recover $3.9 billion{{ACOPEN_4}}. In a subsequent development the amount of claims was reduced to $2 billion. Ultimately the companies agreed to pay $175 million to Alameda Research.

In September the court approved a buyback by Robinhood of its 55 million shares worth $605.7 million, which previously belonged to the exchange’s founder Sam Bankman-Fried.

Recall, in August FTX told the court it planned to hire Galaxy Digital to sell assets worth $3 billion.