FTX claims ByBit illegally withdrew nearly $1 billion

The bankruptcy estate of cryptocurrency exchange FTX, led by CEO John J. Ray III, is suing Bybit and its affiliates to recover cash and digital assets valued at approximately $953 million.

The lawsuit alleges that Bybit used its “VIP” access and close ties with FTX staff to withdraw cash and digital assets just before the crypto empire’s collapse in November 2022. Bybit’s investment arm, Mirana Corp., is accused of having special “VIP” benefits and leveraging those privileges to withdraw most of its assets from FTX.

The lawsuit also delves into the dealings surrounding BitDAO, a decentralized organization that Bybit controlled despite presenting it as community-run. This alleged tie came to light during a token swap involving Alameda Research, FTX’s trading entity, and BitDAO. Subsequent actions by BitDAO and Bybit, including a failed attempt to reverse the token swap and a controversial community vote to restrict FTX from converting its tokens, are highlighted as part of the lawsuit’s allegations.

The disclosure further details that FTX’s hedge fund Alameda Research received 100 million BIT tokens in exchange for about 3.4 million FTT tokens. In May 2023, Bybit approached the FTX bankruptcy estate with a request to “unwind” or reverse the transaction. Although the BIT tokens were valued at around $50 million at that time, exceeding the value of the FTT tokens, which were valued at $4 million, Bybit sought to reverse the swap.

This unusual request prompted FTX estate to reject the proposal, considering it to be “facially absurd” given the substantial difference in token values. The lawsuit alleges that after the rejection, BitDAO announced a rebranding and token issuance, and Bybit, through apparent control over community votes, hindered FTX from converting its tokens.

FTX employees reportedly prioritized withdrawals for VIP customers, with a specific focus on facilitating large transfers for Mirana. Over $327 million was allegedly transferred to Mirana, contributing to the total value of nearly $1 billion withdrawn by Bybit and its affiliates.

The FTX bankruptcy estate’s lawsuit seeking “actual and punitive damages” in relation to the token scheme and the assets Bybit currently holds on its exchange. This includes over $125 million worth of assets that Bybit has reportedly restricted FTX from withdrawing, purportedly used as leverage to recover a remaining balance of $20 million that Bybit was unable to withdraw before FTX’s collapse.

The lawsuit seeks to recover the funds withdrawn by Bybit and its executives, which now have a total value close to $1 billion. Bybit has yet to publicly respond to the lawsuit.