FTX recovers $460 million from Modulo Capital

FTX, the exchange in search of redemption, has reached a deal with Modulo Capital, a venture capital firm that received a substantial investment from Alameda Research last year. This agreement allowed FTX to recover a whopping $460 million in funds that SBF had allegedly royally diverted to Modulo Capital, one of its secret companies.

FTX and Modulo Capital Settle to Avoid Costly Legal Battle

While FTX is struggles to pay back aggrieved creditors, the exchange announced this Wednesday, March 22, the conclusion of a financial agreement with the hedge fund Modulo Capital.

As part of this agreement FTX is seeking an out-of-court settlement that would allow it to recover the sum of $460 million. A sum that the company believes was misappropriated by Sam Bankman-Fried in favor of Modulo Capital, a hedge fund based in the Bahamas.

This arrangement would allow both entities to avoid costly litigation, while allowing Modulo Capital to continue its activities by staying away from the business FTX.

The terms of the agreement provide for reimbursement of substantially all transferred by Alameda to Modulo, while avoiding the time and expense of pursuing the claims through litigation.

From the document

Xiaoyun “Lily” Zhang and Ducan Rhenigans-Yoo founded Modulo Capital in early 2022. The sister company of FTX, Alameda Research invested $475 million in seed capital in Modulo in the same year. This makes it one of the most important investments made under the direction of Sam Bankman-Fried. According to the document filed by FTX, SBF sponsored the investment of Alameda Research in Modulo Capital.

In addition, the filing indicates that Alameda has signed a partnership agreement with Modulo on June 16, in exchange for ownership of 20% of Modulo’s Class A shares.

FTX recovers some of the funds misappropriated by Modulo Capital

Under the terms of the compromise, Modulo will have to give back the equivalent of 404 million in cash, while forfeiting $56 million of his frozen funds on the FTX trading platform. This represents almost 97% of FTX’s total investment, which is far from being negligible!

However, the document revealed that the $460 million in recovered assets represents more than 99% of the remaining assets of Modulo. In other words, there is almost nothing left in the company’s coffers.

The regulatory framework also requires Alameda to dispose of all the shares it held in Modulo under the original agreement. In other words, things are not going well between the two companies.

For now, the agreement still needs to be validated by U.S. Bankruptcy Judge John Dorsey, who is expected to rule on the matter at a hearing scheduled for April 12. However, it is already clear that if the agreement is approved, creditors will have something to celebrate, even if the sum of $460 million is only a small fraction of the $11 billion claimed.