FTX sues LayerZero Labs to recover $86 million transferred on the eve of bankruptcy

ChainCatcher news, according to The Block, FTX, led by CEO John Ray III, is suing LayerZero Labs to recover $86 million transferred just before its bankruptcy. The lawsuit primarily concerns a transaction made by former Alameda Research CEO Caroline Ellison on November 7, 2022 (four days before filing for bankruptcy) with LayerZero Labs. As part of the deal, Alameda agreed to sell its 5% stake in LayerZero (valued at $150 million based on LayerZero's current valuation) in exchange for LayerZero waiving a $45 million loan provided to Alameda.

The lawsuit claims that at the time of the transfer, FTX was already insolvent, and therefore these transactions constitute fraudulent activity under bankruptcy law and should be rescinded. Alameda also agreed to sell 100 million Stargate (STG) tokens to LayerZero for $10 million. The company had paid $25 million earlier that year to purchase these tokens. The lawsuit states that although LayerZero Labs made efforts to regain control of the tokens by reissuing them to a wallet controlled by the company, the transaction was never completed and was later halted due to the threat of FTX property litigation.

The lawsuit also seeks to recover the withdrawals made by LayerZero and its former COO Ari Litan from the FTX.com and FTX.US exchanges within 90 days prior to FTX's bankruptcy filing. During this period, LayerZero withdrew $21 million from its account on FTX.com, of which about $16 million was withdrawn by the end of October (before FTX's issues became widely known). The lawsuit notes that the remaining $5 million was withdrawn on November 7, the same day LayerZero made a repayment. Additionally, the lawsuit names Litan as a defendant and questions approximately $19.6 million withdrawn from the FTX.US account just days before FTX filed for bankruptcy, with these withdrawals made in Litan's name and under his limited liability company Skip & Goose.