The FTX bankruptcy estate, under the leadership of CEO John J. Ray III, has initiated a legal battle against ByBit, its investment arm Mirana, and several key executives in an attempt to recover assets and digital funds amounting to nearly $1 billion.
This move comes as FTX aims to reclaim what it alleges ByBit unlawfully withdrew just before FTX’s financial downfall.
The lawsuit alleges that ByBit leveraged its “VIP” privileges and close connections with FTX staff to execute substantial cash and digital asset withdrawals from Mirana, as well as Time Research, another entity associated with ByBit, and certain executives shortly before FTX’s collapse in November 2022.
During the challenging withdrawal period faced by FTX, employees meticulously tracked the withdrawal requests of VIP clients using a spreadsheet titled “VIP Request – Prioritize (Settlement).”
The lawsuit contends that FTX’s settlement team went to great lengths to prioritize Mirana’s substantial withdrawals, resulting in transfers amounting to over $327 million to Mirana.
This adds up to the approximate $1 billion in assets that ByBit and its executives have reportedly withdrawn from FTX.
The legal action further claims that ByBit has imposed restrictions on the FTX estate, preventing withdrawals exceeding $125 million on the ByBit exchange.
These limitations are allegedly being used as leverage by ByBit to recover a remaining balance of $20 million that it was unable to withdraw from FTX prior to its collapse.
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In an intriguing twist, the lawsuit asserts that in October 2021, a ByBit executive privately disclosed to FTX that the company effectively controlled BitDAO, which is now known as Mantle.
This revelation came despite ByBit initially presenting BitDAO as a decentralized organization run by community members. Subsequently, in May 2023, ByBit approached the FTX bankruptcy estate with a proposal to reverse the transaction.
However, the value of BIT tokens, approximately $50 million at the time, significantly exceeded the value of FTT tokens, which were valued at approximately $4 million. FTX rejected this seemingly illogical proposition.
Following FTX’s rejection, BitDAO swiftly rebranded itself as Mantle and introduced MNT tokens for BIT holders to convert at a 1:1 ratio.
During FTX’s conversion process, BitDAO allegedly disabled it and held a “community vote” to decide on restricting FTX from converting its tokens. FTX argued that this action violated the automatic stay in Chapter 11 bankruptcy.
Nevertheless, the “community vote” passed, with votes seemingly linked to ByBit executives, notably including a significant vote from the wallet “dtoh.eth,” identified as Mirana Ventures, a Mirana subsidiary led by David Toh.
The legal action seeks both “compensatory and punitive damages” from ByBit, concerning the token scheme and the assets held on its platform.
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