Cryptocurrency exchange FTX has filed a lawsuit against venture capital company Modulo Capital seeking the recovery of $460 million in client monies that it claims were improperly taken. The move comes as FTX is undergoing bankruptcy proceedings, with payments made to entities prior to the filing potentially eligible for clawback and redistribution to creditors. Although both companies will avoid an expensive legal battle through the settlement, the monies only account for a small percentage of FTX’s total asset deficiency.
Modulo Capital was established in March 2022 by three executives who had previously worked at Jane Street, a New York-based company that had hired FTX CEO Sam Bankman-Fried and former Alameda CEO Caroline Ellison. Alameda Research, FTX’s sister trading business, invested around $400 million in Modulo last year, reportedly at the instruction of Bankman-Fried.
As part of the settlement, Modulo has agreed to pay back $404 million in cash and relinquish its claim to assets worth $56 million stored on FTX’s cryptocurrency exchange, which amounts to roughly 97% of FTX’s original investment. Alameda will also give up its claim to the Modulo shares it previously held. However, the agreement is still subject to approval by a United States bankruptcy judge, with a hearing scheduled for April 12.
Reports suggest that Bankman-Fried may have invested in Modulo due to a romantic relationship with one of the company’s founders, Xiaoyun “Lily” Zhang, though this has not been confirmed. Regardless, the settlement represents a significant financial hit for both FTX and Alameda Research. It remains to be seen how this will impact the cryptocurrency market more broadly, though it underscores the need for investors to exercise caution when dealing with untested ventures in the crypto space.
