LayerZero Hits Back at FTX Following Lawsuit Over Previous Commercial Relationship

Over the past year, FTX has filed numerous lawsuits against previous business partners, attempting to claw back funds allegedly spent without justification or in subprime deals.

Often, these funds were indeed spent on a whim, whether at networking parties or, presumably, gaming. However, LayerZero’s CEO Bryan Pellegrino argued that this could not be farther from the truth in this case.

Multimillion-Dollar Lawsuit

In the lawsuit filed on the 8th of September, FTX’s new leadership argues that the deals the firm made with LayerZero shortly before its collapse were unfair to it since the exchange was already insolvent at the time.
However, the deals in question were made before the company officially filed for bankruptcy on the 7th of November, 2022.

According to FTX’s lawyers, Alameda CEO Caroline Ellison traded the FTX Empire’s 5% stake in LayerZero – worth $150 million at present valuation – in exchange for loan forgiveness regarding LayerZero’s $45 million loan to Alameda. Since the FTX Group was already insolvent, the platform’s lawyers argue that this could even be considered fraud.

At the time, bankruptcy had not yet been declared, begging the question of just how much LayerZero was supposed to know about FTX’s situation.

The rest of the sum mentioned in the lawsuit is made up of $21 million withdrawn from LayerZero’s FTX account – of which $16 million was withdrawn before FTX even began to display signs of being unstable – and the money paid for 100 million Stargate (STG) tokens.

These tokens had been sold to FTX for $25 million earlier that year. In an effort to settle its deals with other platforms and avoid a total collapse, Alameda sold these tokens back to LayerZero for $10 million.

LayerZero CEO Lashes Out At FTX

Shortly after the lawsuit was filed, Bryan Pellegrino took to X to give his firm’s side of the story.

Regarding the FTX suit, the entire suit is filled with unsubstantiated claims. We have been in communication with the FTX liquidators for almost a year now and have time and time again attempted to proactively address the issue of ownership of the shares with them and have been…

— Bryan Pellegrino (@PrimordialAA) September 11, 2023

According to Pellegrino, he and his firm have been in contact with FTX liquidators since the beginning, and any attempts at resolving the issues between the companies were ignored, causing the CEO to doubt that there is any good faith involved.

“To see them wait all this time to file a suit filled with unsubstantiated claims leads me to believe the purpose is not to settle the issue but simply prolong the process in hopes of receiving more legal fees.”

Regarding the withdrawals, Layer Zero’s CEO argued that any transactions of the sort were cursory ones related to his company’s day-to-day business. In fact, as late as the 7th of November, Pellegrino deposited $1 million into his firm’s FTX account.

As far as the Stargate tokens are concerned, Pellegrino stated that the misunderstanding stems from a dispute regarding the private keys to the wallet containing these assets.

“We also attempted to repurchase the STG […] but were unable to secure the private keys to the wallet in which the tokens vested. Ahead of the unlock, we took the initiative to reach out to FTX and work cooperatively to reissue the tokens, staying the issue of ownership.

They flat out refused, and their counsel seemed to believe that they were in custody of the physical keys required to access the tokens and did not seem to have even the basic understanding of what private keys were.”

Pellegrino further expressed his disappointment regarding the FTX estate’s actions and stated that he and his team look forward to clearing up the issue in court.