The lawsuit alleges that Bybit’s investment arm, Mirana Corp., withdrew over $953 million in cash and digital assets from FTX before the exchange filed for Chapter 11 bankruptcy protection.
Bybit did not immediately respond to a request for comment.
The lawsuit , filed in Delaware court, alleges that Bybit’s investment arm, Mirana Corp., had special “VIP” benefits that most FTX customers did not have. These privileges allowed Mirana to withdraw most of its assets from FTX before the exchange collapsed in November 2022.
The complaint further alleges that Mirana pressured FTX employees to prioritize its withdrawal requests while regular customers struggled to access their funds as the exchange crumbled.
The lawsuit seeks to recover assets worth roughly $953 million, including more than $327 million that Mirana allegedly withdrew from FTX between the early morning of Nov. 7 and Nov. 8, 2022, when FTX halted withdrawals.
Chapter 11 bankruptcy protection provides failed companies with the ability to reclaim funds withdrawn in the months leading up to the bankruptcy filing. This mechanism aims to prevent certain creditors from gaining an unfair advantage by extracting their money while others remain unpaid.
The lawsuit against Bybit represents the latest effort by FTX’s new management to recover funds that were withdrawn prior to the company’s bankruptcy filing last November.
The legal action alleges that in October 2021, a Bybit executive privately disclosed to FTX the control of BitDAO, initially presented as a decentralized entity.
By May 2023, Bybit proposed reversing the transaction to the FTX bankruptcy estate, despite the BIT tokens’ higher value of approximately $50 million compared to FTT tokens, approximately $4 million at the time.
FTX rejected the proposal, leading to BitDAO’s rebranding as Mantle and the introduction of MNT tokens. The lawsuit claims that Bybit, through a questionable “community vote ,” restricted FTX from converting its tokens, violating the Chapter 11 bankruptcy automatic stay.
The legal action seeks “compensatory and punitive damages” from Bybit concerning the token scheme and held assets.
FTX.com is poised for a fresh start. The defunct cryptocurrency exchange has recently outlined plans to categorize its creditors into distinct classes of claims. Pending group consensus, a specified class of claimants could potentially revive the FTX exchange by collaborating with external investors.
The document segregates claimants into different classes. The hierarchy includes U.S. exchange customers, referred to as “U.S. customers,” followed by participants in its NFT exchange, general unsecured claims, secured claims, and subordinated claims. The initial group comprises claimants of FTX.com’s offshore exchange, also known as “dotcom customers.” General claims encompass contributions from Alameda’s lenders or business partners, while subordinated claims cover taxes and penalties.
Following ‘waterfall priorities,’ claims will be sequenced. Each class will receive a proportional payout once the preceding class finishes. Stakeholders determine the payout order through discussions. Former FTX.com customers in the Dotcom claims category can unite resources to create an offshore exchange company or a rebooted platform unavailable in the US.
Debtors might forgo cash and instead receive equity securities, tokens, or other interests in the Offshore Exchange Company as part of the payout, suggesting their stake in the new exchange.
FTX’s lawsuit against Bybit Fintech Ltd and its affiliates highlights the complexities and potential for legal disputes surrounding the withdrawal of assets from a bankrupt exchange.
The outcome of this lawsuit could have significant implications for other creditors of FTX. It may also set a precedent for similar cases in the future.
As the bankruptcy proceedings continue, it is likely that there will be further scrutiny of the actions of FTX and its affiliates leading up to the bankruptcy filing.