The bankrupt cryptocurrency exchange, FTX, is seeking to recover $460 million in allegedly misappropriated customer funds from venture capital firm Modulo Capital. The venture capital firm received a sizeable investment from Alameda Research last year, which is understood to have been at the direction of FTX’s CEO, Sam Bankman-Fried.
FTX claimed that Alameda Research invested $475 million in Modulo in a series of transfers beginning in May 2022. According to a filing made on March 22, Alameda entered into a limited partnership agreement with Modulo on June 16, resulting in the transfer of the aforementioned funds to Modulo in exchange for ownership of 20% of Modulo’s Class A shares.
In bankruptcy proceedings, payments made to entities prior to the bankruptcy filing may be eligible to be clawed back and redistributed to creditors. As per the settlement agreement, Modulo has agreed to repay $404 million in cash and will give up its claim to $56 million worth of assets held on FTX’s crypto exchange, representing nearly 97% of FTX’s initial investment.
Modulo Capital was founded in March 2022 by three former executives at Jane Street, a New York-based firm that once employed Bankman-Fried and former Alameda CEO Caroline Ellison. Bankman-Fried is also reported to have been in a romantic relationship with one of its founders, Xiaoyun “Lily” Zhang, which some have theorized was the motivation behind his push to invest in the obscure VC firm.
The deal still needs to be confirmed by United States Bankruptcy Judge John Dorsey, with a motion hearing set for April 12. While the $460 million settlement would be a huge win for creditors, it still only represents less than 7% of the current shortfall, as claims against FTX surpass $11 billion compared to just $4.7 billion in assets.
