FTX LayerZero Lawsuit is “Filled With Unsubstantiated Claims”

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  • LayerZero Labs CEO, Bryan Pellegrino, had hit out at FTX’s lawsuit against the company
  • The lawsuit revolves around transactions involving Alameda Ventures and LayerZero, including payments for a stake and STG tokens
  • FTX alleges LayerZero took advantage of Alameda Ventures during a liquidity crisis and aims to recover approximately $21 million from LayerZero Labs

The Co-founder and CEO of LayerZero Labs has said that a lawsuit filed by bankrupt exchange FTX is “filled with unsubstantiated claims” and that his company owes FTX nothing. FTX claims that LayerZero owes it $21 million in funds allegedly unlawfully withdrawn before FTX’s November shutdown, but Bryan Pellegrino has hit out all elements of the suit, from the alleged levels of ownership to the accounting methods used by FTX to arrive at the demanded figure. The move is another attempt from FTX to claw back as much money as possible for creditors, but Pellegrino believes the aim of the suit is to line lawyers’ pockets.

Alameda Ventures Acquired LayerZero Shares

The lawsuit centers on transactions conducted between January and May 2022 involving Alameda Ventures, the venture capital arm of Alameda Research (FTX’s sister company), and LayerZero. According to court documents filed on September 9, Alameda Ventures made payments totaling over $70 million in two transactions, acquiring approximately 4.92% of LayerZero.

Additionally, in March, Alameda Ventures paid $25 million for 100 million STG tokens at a public auction, with distribution scheduled to commence in March 2023.

In February, LayerZero extended a $45 million loan to Alameda Research with an annual interest rate of 8%. When FTX encountered financial difficulties in early November, LayerZero sought an arrangement to recover its stake from Alameda, which included returning shares to LayerZero in exchange for forgiving the $45 million loan.

LayerZero “Took Advantage” of FTX Troubles

Another agreement concerned the 100 million STG tokens, which LayerZero intended to repurchase at a discounted rate of $10 million on November 9. However, this transaction was never finalized, as LayerZero did not make the payment, and Alameda Ventures did not transfer the tokens.

FTX’s lawsuit alleges that LayerZero took advantage of Alameda Ventures during a liquidity crisis, asserting that “LayerZero was well aware that Alameda Research was facing a liquidity crisis and, within about 24 hours, negotiated a fire-sale transaction with Caroline Ellison, Alameda Research’s then-CEO.”

In addition to seeking the cancellation of these agreements, the lawsuit aims to recover funds withdrawn just days before FTX filed for bankruptcy. This includes around $21.37 million from LayerZero Labs, $13.07 million from its former Chief Operating Officer Ari Litan, and $6.65 million from a subsidiary known as Skip & Goose.

Pellegrino Disputes All Areas of FTX’s claim

Pellegrino didn’t take kindly to FTX’s claims and penned a lengthy X post where he refuted them:

Pellegrino argued that FTX’s claims are unsubstantiated and that they have attempted to address ownership matters through communication with FTX’s liquidators for nearly a year, only to be ignored. Pellegrino also questioned the timing of the lawsuit, suggesting it may be an attempt to prolong the legal process and allow the legal teams to pick up more fees.

Regarding allegations of preferential information about withdrawals, Pellegrino pointed out substantial deposits made leading up to FTX’s bankruptcy and asserted that withdrawals were part of regular business operations, not panic-driven actions. He criticized FTX’s accounting method which used gross rather than net withdrawals, which he argued could lead to exaggerated figures in cases of high deposit and withdrawal volumes.

Pellegrino also highlighted the company’s efforts to repurchase tokens but blamed FTX for refusing to cooperate.