Bankrupt cryptocurrency exchange provider FTX is attempting to clawback a $400 million investment in a Brazilian hedge fund made by its founder Sam Bankman-Fried.
The return of the $400 million investment would benefit the thousands of creditors and users of FTX who lost their assets when the exchange filed for bankruptcy in November 2022.
DON'T MISS: FTX Seeking to Recover Political Donations (Bad News for Democrats)
Bankman-Fried made numerous investments in other companies during his tenure as CEO of the crypto exchange, including the investment in Modulo Capital, according to a New York Times article.
Modulo Capital received the investment from Bankman-Fried during its heyday when it was one of the top crypto exchanges.
The founders of the Brazilian hedge fund are working with the bankruptcy attorneys representing FTX to return the money that has been held at JPMorgan Chase, the largest bank in the world, sources told the NYT.
The funds have been allocated to an interest-bearing account at the bank because JPMorgan served as its prime broker. Hedge funds work with prime brokers in order to trade stocks and futures.
FTX collapsed in November and the the holdings were converted into cash and have been sitting in the account.
Recovering Money For FTX Creditors
Advisers to the failed cryptocurrency exchange have recovered cash and crypto assets that they plan to sell to repay creditors.
New FTX Chief Executive John Ray's team, in charge of liquidating the Bankman-Fried's empire, recovered over $5 billion in cash and crypto assets, they told a federal court in Wilmington, Del., on Jan. 11. The company's shortfall has been estimated to be at least $8 billion.
"We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities measured at petition date value," said Landis Rath & Cobb attorney Adam Landis on FTX's behalf.
The new management of FTX also wants the money that was donated to politicians back by the end of February.
The clawback request was made via "confidential messages" to politicians, the company said via a statement that was released on Feb. 5.
The statement did not disclose the names of the politicians or the amount of donations they received from Bankman-Fried.
However, a search of Federal Elections Commission records reveals more than 150 contributions to individual Democrats, state committees and political action committees associated with Democrats by donors identified as Samuel Bankman-Fried or Sam Bankman-Fried.
The donations, over several election cycles, totaled more than $46 million. They include $27 million in donations to the Protect Our Future PAC, which launched in 2022, $6 million to the House Majority PAC, and $500,000 to the DNC Services Corp./ Democratic National Committee.
Bankman-Fried was charged with multiple counts of fraud and conspiracy connected to collapse of FTX. He pleaded not guilty and is on a $250 million bail under house arrest at the Palo Alto, Calif., house of his parents until his trial starts in October.
He is still in a dispute over the 55 million shares he owns of trading platform Robinhood (HOOD) that he purchased through Emergent Financial Technologies, another company that he operated. Those assets were seized by the Justice Department, but Bankman-Fried said he needs the proceeds from a sale of the shares to use for his legal defense.
“Mr. Bankman-Fried has not been found criminally or civilly liable for fraud, and it is improper for the FTX Debtors to ask the Court to simply assume that everything Mr. Bankman-Fried ever touched is presumptively fraudulent,” his attorneys said in a court filing.
Judge Denies Need For Indepedent Examiner
Federal bankruptcy Judge John Dorsey denied a request on Feb. 15 from the U.S. Trustee, a federal watchdog that monitors corporate bankruptcies, to appoint an independent examiner to oversee FTX's bankruptcy.
Dorsey cited Ray's experience in restructuring companies and stated that companies working on the case have already sought millions of dollars for their work already. Funds recovered should go to the creditors, including users and investors of FTX.
An examiner would cost “tens of millions of dollars and would likely exceed 100 million,” he said.
Law firm Sullivan & Cromwell, which represents FTX, already billed $7.5 million for spending two and a half weeks last November according to court documents.
