FTX reaches deal to recover over $400 million from hedge fund Modulo

7:36 pm Wednesday, March 22nd, 2023

By Dietrich Knauth

(Reuters) – Bankrupt crypto exchange FTX has reached a deal to recover more than $400 million in cash from hedge fund Modulo Capital, pulling back 97% of the money that FTX companies sent to the hedge fund in 2022, according to court documents filed on Wednesday.

Bahamas-based Modulo agreed to pay $404 million in cash and give up its claim to $56 million in assets held on FTX’s crypto exchange, according to a filing in U.S. bankruptcy court in Delaware.

FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange. FTX’s new CEO, John Ray, has said his top priority was recovering assets to repay FTX customers.

FTX’s affiliated hedge fund Alameda Research sent $475 million to Modulo in a series of transfers beginning in May 2022, a time when FTX was losing money and heading toward bankruptcy, according to the court filings.

Alameda, at the direction of FTX founder Sam Bankman-Fried, had paid $25 million to acquire a stake in Modulo and contributed $450 million to an investment fund managed by Modulo, according to the filings.

The settlement recovers most of those payments and takes 99% of Modulo’s remaining assets, according to the filings.

FTX and Alameda will give up their claim to any ownership of Modulo as part of the settlement. FTX also agreed to not take further actions against Modulo or its principals Xiaoyun Zhang and Duncan Rheingans-Yoo related to the 2022 payments, according to the filings.

FTX, Bankman-Fried, and Modulo Capital did not immediately respond to requests for comment.

FTX has previously recovered more than $5 billion in its quest to repay customers of the bankrupt crypto exchange. FTX said last week that it was investigating more than $3.2 billion that was transferred out of the company through payments and loans to company founders and key employees.

Bankman-Fried has been charged with stealing billions of dollars in FTX customer funds to cover losses at Alameda Research, and making tens of millions of dollars in illegal political donations to buy influence in Washington, D.C.

He denies wrongdoing and is fighting to stay out of jail pending his scheduled Oct. 2 fraud trial.

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi and David Gregorio)