FTX claims Bybit, one of world’s largest crypto exchanges, used VIP status to pull hundreds of millions of dollars during collapse

William of England
By William of England 5 Min Read

After FTX collapsed in November 2022 underneath Sam Bankman-Fried, the brand new management stewarded by John J. Ray III has sought to claw again funds from insiders, clients, and recipients of FTX’s investments. Friday’s lawsuit represents one of the largest claims as half of the chapter proceedings.

VIP status

Before its chapter, FTX was one of the largest crypto exchanges on the earth, with a quantity of main merchants counted among the many firm’s shoppers, together with Alameda—the buying and selling arm of FTX led by Bankman-Fried’s one-time girlfriend, Caroline Ellison.

Another lively dealer on FTX was Mirana, the funding arm of Bybit, at present the sixth-largest cryptocurrency spot trade by quantity.

According to the lawsuit, Mirana’s massive account stability on FTX—which hovered round $850 million in November 2022—afforded it particular privileges on the platform relative to common FTX clients, together with concierge help and elevated entry to workers.

FTX’s remedy of most popular merchants was on the coronary heart of fraud fees introduced by the Department of Justice towards Bankman-Fried and his interior circle, with prosecutors arguing that Alameda was ready to use different clients’ funds for its personal functions, together with enterprise investments and actual property purchases. A jury in a New York federal court docket discovered Bankman-Fried responsible of all counts earlier this month.

While Mirana didn’t have entry to different clients’ funds, it did obtain VIP remedy. According to the lawsuit filed in a Delaware chapter court docket, Mirana—together with its affiliated entities and senior workers—rushed to withdraw belongings from its FTX accounts in November 2022 as questions across the trade’s solvency intensified.

Because of Mirana’s most popular status, Bybit’s funding arm was ready to prioritize its withdrawal requests, decreasing the funds out there to different clients. The lawsuit additionally alleges that FTX held belongings on Bybit, permitting Bybit to seize these funds and use them as leverage to drive FTX to prioritize its withdrawals.

Through this course of, Mirana was ready to withdraw almost $500 million of its digital belongings from FTX within the last days earlier than FTX disabled withdrawals. The chapter property additional alleges that Bybit has refused to enable FTX to reclaim the $125 million nonetheless held in Bybit accounts and has used an “ostensibly independent entity” referred to as BitDAO to devalue tens of millions of dollars of cryptocurrency tokens held by FTX.

Bybit and Alameda had agreed to a token swap in October 2021, the place Alameda acquired 100 million tokens native to the BitDAO undertaking in trade for round 3.4 million of FTX’s native token, FTT. FTX alleges that in May 2023, Bybit sought to reverse the commerce. After FTX refused, BitDAO introduced it could rebrand the undertaking and alter the construction of the tokens, together with proscribing FTX’s skill to redeem its BitDAO tokens.

The FTX chapter property is in search of to claw again belongings it values at $953 million from Bybit, in accordance to pricing as of Nov. 1, 2023.

Representatives from Bybit didn’t instantly reply to a request for remark from Fortune.

‘A complete failure’

Ray, the steward of the Enron chapter, took over FTX in November 2022. Appearing earlier than Congress in December, he declared that he had by no means seen such a “complete failure” of company management.

The FTX chapter property has launched a quantity of lawsuits to recuperate billions in buyer funds, together with towards the dad and mom of Bankman-Fried, alleging that they had been “siphoning” millions of dollars for his or her “own personal benefit.”

In one other lawsuit from July, FTX sought to claw again hundreds of millions of dollars from former insiders, together with Bankman-Fried, former FTX CTO Gary Wang, former FTX head of engineering Nishad Singh, and Ellison.

The chapter proceedings are among the many most complicated in U.S. monetary historical past, as Ray seeks to unwind a knotted mess from Bankman-Fried’s crypto empire that was entangled with many of the most important exchanges and lenders within the house, together with Binance, Bybit, and Digital Currency Group.

Ray can also be in search of to discover a purchaser to relaunch the failed trade, with the bidding course of reportedly down to three finalists, together with an organization run by the previous president of the New York Stock Exchange.

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