The FTX bankruptcy estate filed its latest lawsuit Friday in its bid to restore customer integrity, suing crypto exchange Bybit for nearly $1 billion.
After FTX collapsed in November 2022 under Sam Bankman-Friedthe new leadership led by John J. Ray III sought to recover funds insiders, customers and beneficiaries of FTX investments. Friday’s trial represents one of the largest claims in the bankruptcy proceedings.
Before its bankruptcy, FTX was one of the largest crypto exchanges in the world, with a number of major traders among the company’s clients, including Alameda, the trading arm of FTX run by Bankman’s former girlfriend- Fried, Caroline Ellison.
Another active trader on FTX was Mirana, the investment arm of Bybit, currently the sixth largest volume cryptocurrency spot exchange.
According to the lawsuit, Mirana’s large account balance on FTX — which hovered around $850 million as of November 2022 — afforded her special privileges on the platform compared to average FTX clients, including concierge service and a increased access to employees.
FTX’s treatment of privileged traders was at the heart of the Justice Department’s fraud charges against Bankman-Fried and his entourage, with prosecutors arguing that Alameda was able to use other clients’ funds for its account. own goals, including venture capital investments and real estate purchases. A New York federal court jury tried Bankman-Fried guilty from all accounts earlier this month.
Although Mirana did not have access to other clients’ funds, she received VIP treatment. According to the lawsuit filed in a Delaware bankruptcy court, Mirana, along with its affiliated entities and senior executives, rushed to withdraw assets from its FTX accounts in November 2022 as questions around the exchange’s solvency s were intensifying.
Thanks to Mirana’s preferred status, Bybit’s investment arm was able to prioritize its withdrawal requests, thereby reducing the funds available to other customers. The lawsuit also alleges that FTX held assets on Bybit, allowing Bybit to seize those funds and use them as leverage to force FTX to prioritize its withdrawals.
Through this process, Mirana was able to withdraw nearly $500 million of its digital assets from FTX over the past few days before FTX disabled withdrawals. The bankruptcy estate further alleges that Bybit refused to allow FTX to recover the $125 million still held in Bybit accounts and used a “seemingly independent entity” called BitDAO to devalue tens of millions of dollars worth of tokens. of cryptocurrency held by FTX.
Bybit and Alameda had agreed to a token swap in October 2021, during which Alameda received 100 million native tokens from the BitDAO project in exchange for approximately 3.4 million tokens. FTX’s native token, FTT. FTX alleges that in May 2023, Bybit sought to reverse the transaction. After FTX’s refusal, BitDAO announced that it would rename the project and change the token structure, including restricting FTX’s ability to repurchase its BitDAO tokens.
The FTX bankruptcy estate is seeking to recover assets from Bybit that it values at $953 million, based on prices in effect as of November 1, 2023.
Bybit representatives did not immediately respond to a request for comment from Fortune.
“A complete failure”
Ray, the steward of Enron’s bankruptcy, took over FTX in November 2022. Appearing before Congress in December, he declared that he had never seen such a “total failure” of corporate control.
The FTX bankruptcy estate has spear a number of lawsuits to recover billions in client funds, including against Bankman-Fried’s parents, alleging they were “siphoning off” millions of dollars for their “own personal gain.”
In another lawsuit filed in July, FTX sought to recover hundreds of millions of dollars from former insiders, including Bankman-Fried, FTX’s former CTO. Gary Wangformer head of engineering at FTX Nishad Singhand Ellison.
The bankruptcy proceedings are among the most complex in American financial history, as Ray seeks to untangle the mess of Bankman-Fried’s crypto empire that was entangled with many of the industry’s major exchanges and lenders, including BinanceBybit, and Digital Currency Group.
Ray is also looking for a buyer to revive the failed stock market, with the tender process Only three finalists would remain, including a company led by the former president of the New York Stock Exchange.