FTX bankruptcy team files $1 billion lawsuit against Bybit

FTX, the cryptocurrency exchange founded by Sam Bankman-Fried, has found itself entangled in a legal battle as its bankruptcy advisers launch a $1 billion lawsuit against Bybit Fintech and its associated entities. This legal action seeks to recover approximately $953 million in cash and digital assets that were withdrawn from FTX just prior to its Chapter 11 filing a year ago.

The lawsuit, filed in Delaware court on Friday, is directed at Bybit’s investment arm, Mirana Corp., which, according to the complaint, enjoyed exclusive “VIP” benefits not afforded to the majority of FTX customers. These privileges allegedly allowed Mirana to make substantial withdrawals of its assets from FTX, creating a contentious situation as the exchange was on the brink of collapse in November 2022.

The lawsuit claims that Mirana, leveraging its VIP status, pressured FTX employees to swiftly fulfill its withdrawal requests, while regular FTX customers experienced significant delays in accessing their funds. The legal action aims to recover assets totaling about $953 million, including over $327 million that Mirana allegedly withdrew from FTX in the critical period between November 7 and November 8, 2022, when FTX temporarily halted withdrawals.

Defendants in the lawsuit include Bybit Fintech Ltd., Mirana, and affiliated crypto trading firm Time Research Ltd. It also names a senior Mirana executive and Singaporean residents who are alleged to have either benefited from or played a role in the contentious FTX withdrawals.

Chapter 11 bankruptcy typically provides failing companies with an opportunity to recover funds in the months leading up to the filing. This is designed to prevent certain creditors from taking unfair advantage simply because they were able to withdraw their funds from a failing business while others could not.

The legal proceedings highlight the complexity of financial transactions and the competitive dynamics in the cryptocurrency industry. FTX’s pursuit of reclaiming funds involves various legal actions against individuals and entities involved in transactions preceding its Chapter 11 filing. The outcome of this lawsuit could have broader implications for the regulation and oversight of crypto exchanges and their interactions with affiliated entities during times of financial distress.