FTX Estate Takes Legal Action Against LayerZero Labs to Recover $86 Million

FTX’s bankruptcy estate has taken legal action against LayerZero Labs, the development firm behind a cross-chain swap protocol, in a bid to reverse a series of financial transactions conducted by FTX’s former management shortly before the exchange filed for bankruptcy.

The lawsuit centers around a transaction involving former Alameda Research CEO Caroline Ellison and LayerZero Labs, which took place just four days prior to FTX’s bankruptcy filing.

In this transaction, Alameda committed to returning its 5% equity stake in LayerZero, valued at $150 million, while LayerZero in return would forgive a $45 million loan that had been extended to Alameda.

According to the allegations made in the lawsuit, these transactions, executed while FTX was already insolvent, represent fraudulent activity under bankruptcy regulations, and should be invalidated to benefit the bankruptcy estate.

The news was first reported by crypto news outlet The Block on Sunday.

Attempt to reclaim 100 million Stargate tokens

The legal action also addresses LayerZero’s attempt to reclaim 100 million Stargate (STG) tokens from Alameda, valued at $10 million.

Alameda initially acquired these tokens for $25 million. LayerZero Labs sought to regain control of these tokens by transferring them to a wallet controlled by the company, but this effort was thwarted when the FTX estate threatened legal action.

Furthermore, the lawsuit seeks the recovery of withdrawals made by LayerZero and its former Chief Operating Officer Ari Litan from FTX.com and FTX.US exchanges during the 90 days leading up to FTX’s bankruptcy declaration.

These withdrawals totaled $21 million and $19.6 million, respectively.

The FTX estate has launched multiple legal actions against various companies and individuals in an endeavor to retrieve funds for its creditors.

As of now, LayerZero Labs has not provided a response to the lawsuit or made any public comments regarding the matter.