FTX Hearing Highlights: $24 Billion Claim by the IRS, Dispute with LayerZero

Source: BlockBeats

At 1:00 AM Beijing time on December 14, the U.S. Bankruptcy Court for the District of Delaware will hold an agenda hearing regarding the bankruptcy case of FTX Trading Ltd. (Case No. 22-11068). The purpose of the hearing is to discuss various matters related to the bankruptcy case, including postponed matters such as motions and objections, as well as to review the third interim fee applications submitted by the parties.

This hearing will consider various applications and documents related to the debtors and the debtors' estates, including creditor claims, attorney fees, financial advisor fees, and more. The hearing will be presided over by Judge John T. Dorsey of the U.S. Bankruptcy Court for Delaware. All participants, including attorneys and witnesses, must appear in person. Non-participants can watch the hearing via Zoom by registering in advance.

In the bankruptcy case of FTX Trading Ltd. (Case No. 22-11068), the plaintiffs are:

- FTX Trading Ltd.

- Maclaurin Investments Ltd. (formerly Alameda Ventures Ltd.)

- West Realm Shires Services, Inc.

The defendants are:

- LayerZero Labs Ltd.

- Ari Litan

- Skip & Goose LLC

The submitted hearing agenda outlines postponed matters, resolved matters, upcoming matters, and interim fee applications. Some motions and objections have been postponed to the hearing on January 25, 2024. Among them:

Postponed Matters

Include discovery subpoenas involving the debtors and the official committee of unsecured creditors, motions to lift the automatic stay for Island Air Capital and Paul F. Aranha, motions for the debtors' authorization review, objections to claims submitted by creditor Ross Rheingans-Yoo, and motions to submit claims after the claims submission deadline, among others.

Resolved Matters

Include various objections and proposals for relief measures that have been approved by the court, etc. Additionally, the case of FTX Trading Ltd. et al. v. LayerZero Labs Ltd. et al., Case No. Adv. No. 23-50492 (JTD) has entered a case management plan and timeline.

Interim Fee Applications

Include multiple requests from different entities, including the first and second combined monthly and interim fee applications from the examiner and Godfrey & Kahn, S.C., the third interim fee application from Perella Weinberg Partners LP and Jefferies LLC, as well as other fee applications from various entities such as FTI Consulting, Inc., requesting approval for compensation and reimbursement of expenses for services rendered during a specific period.

Upcoming Matters

List the motion for an order proposed by the U.S. Department of the Treasury - Internal Revenue Service to establish a timeline and procedure for estimating claims. The response deadline for this matter was December 6, 2023. Specifically, it concerns the claim estimation issues raised by the IRS. A motion regarding the debtors requests the court to approve a timeline and procedure for estimating the IRS's claims. The document number for this motion is D.I. 4204, submitted on November 29, 2023.

Additionally, the IRS's objection to the debtors' motion and the official committee of unsecured creditors' statement supporting the debtors' motion are mentioned. These documents and motions are submitted as part of the bankruptcy case and will be discussed at the hearing on December 13, 2023.

Previously, FTX's attorneys stated in new documents submitted to the Delaware Bankruptcy Court that the IRS should confirm its claims against FTX and explain how it estimated the alleged unpaid taxes. This is the latest step in a months-long dispute between the IRS and FTX's bankruptcy estate, focusing on how much unpaid tax the bankrupt trading platform and its affiliates owe the government.

Although FTX claims it owes nothing to the IRS, the tax agency still seeks up to $24 billion in unpaid taxes, which is several times more than what the asset currently holds. The attorneys wrote in the documents that during FTX's three-year lifespan, it never distributed dividends or profits and "never earned any amount sufficient to support the IRS's claim of $24 billion in taxes." Instead, they added that FTX lost a significant amount of money.

Dispute with LayerZero Labs

FTX Foundation sued LayerZero Labs in September this year, attempting to void a $45 million transaction made during the company's bankruptcy. The lawsuit primarily involves a transaction made by former Alameda Research CEO Caroline Ellison with LayerZero Labs on November 7, 2022 (four days before filing for bankruptcy). As part of the transaction, 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, thus these transactions constitute fraud under bankruptcy law, seeking to void the transaction for the benefit of the bankruptcy estate.

Additionally, the lawsuit seeks to recover withdrawals made by LayerZero and its former COO Ari Litan from FTX within 90 days before FTX filed for bankruptcy. It is alleged that just before FTX closed and prohibited withdrawals, LayerZero illegally withdrew $21.37 million from FTX using insider information. Furthermore, FTX seeks to recover approximately $13.07 million and $6.65 million from LayerZero Labs' former COO Ari Litan and his company Skip & Goose, respectively.

LayerZero co-founder and CEO Bryan Pellegrino responded to the FTX lawsuit, stating that the entire lawsuit is filled with unverified claims. LayerZero has been in communication with FTX's liquidators for nearly a year and has repeatedly attempted to proactively resolve the ownership issues with them but has been ignored. He stated that their claim lawsuit is not aimed at resolving issues but merely extending the process in hopes of obtaining more legal fees. Pellegrino also stated that any claims of "illegal" withdrawals are incorrect.