FTX Accuses ByBit of a “Fraudulent Scheme” in Its Lawsuit to Reclaim Roughly $1 Billion

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Last Updated on November 12, 2023 by Bitfinsider

In an attempt to reclaim money and digital assets that ByBit withdrew from FTX on the eve of its collapse and are currently valued at about $1 billion, the FTX bankruptcy estate, headed by CEO John J. Ray III, has filed lawsuits against the exchange, its investment arm Mirana, and a number of its officials.

The lawsuit claims that on the eve of FTX’s collapse, ByBit took advantage of its “VIP” access to FTX and its close ties with FTX employees to take hundreds of millions of dollars in cash and digital assets out of the accounts of several senior executives, Time Research, another ByBit-affiliated company, and Mirana.

A spreadsheet named “VIP Request – Prioritize (Settlement)” was used by FTX employees to track withdrawal requests from VIP customers as the company struggled to meet withdrawal requests in November 2022, according to the lawsuit. The spreadsheet revealed that “FTX Group’s settlement team went to great lengths to prioritize Mirana’s’many huge withdrawals,’ resulting in more than $327 million in transfers to Mirana.” According to the lawsuit, the total worth of the assets that ByBit and its executives were able to remove from FTX has increased to around $1 billion.

According to the lawsuit, ByBit has also prohibited the FTX estate from withdrawing assets valued at over $125 million that it owns on the ByBit market. ByBit “has continued to hold these assets hostage as leverage,” according to the lawsuit, in an effort to get back the $20 million it couldn’t remove from FTX before it collapsed.

The lawsuit further claims that, in spite of BitDAO’s portrayal as a decentralized organization managed by community members, a ByBit official “privately explained” to FTX in October 2021 that the business controls BitDAO, which is now known as Mantle.

The admission supposedly occurred during a token swap wherein 3.4 million FTT tokens were exchanged for 100 million BIT tokens by Alameda Research, FTX’s trading firm. Then, in May 2023, ByBit made contact with the FTX bankruptcy estate regarding “unwinding,” or reversing, the transaction. This was the case even though the FTT tokens, which were only worth about $4 million at the time, were significantly less valuable than the BIT tokens, which were valued at around $50 million.

The lawsuit claims that BitDAO declared shortly after that it will be rebranding as Mantle and releasing new MNT tokens, with BIT holders offered the opportunity to convert their tokens at a 1:1 ratio, after the FTX estate’s rejection of the “facially absurd proposal.” But BitDAO “immediately disabled the token conversion process” once FTX began converting its tokens, and a “community vote” was held to determine whether or not to impose restrictions on FTX’s token conversion.

According to the lawsuit, ByBit was notified by FTX that the action violated the automatic stay implemented in Chapter 11 bankruptcy cases. Nonetheless, the “community vote” succeeded thanks to votes from accounts that appeared to be connected to officials at ByBit. The lawsuit notes that the wallet “dtoh.eth,” identified as Mirana Ventures, a Mirana subsidiary led by David Toh, cast the fifth-largest vote in support of the proposition, weighted by token holdings.

“Actual and punitive damages” are being demanded from ByBit in the case concerning the token system and the money that ByBit has on its exchange.

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