Bryan Pellegrino, the CEO of LayerZero Labs, has voiced his disappointment with the approach taken by the new management of the bankrupt FTX estate in resolving share ownership issues with LayerZero.
The FTX management filed a lawsuit on September 9 against LayerZero Labs over a deal made with Caroline Ellison, the former head of Alameda Research, on November 7, 2022, just four days before FTX filed for bankruptcy. The agreement involved Alameda selling back its 5% stake in LayerZero for $150 million, with LayerZero forgiving Alameda’s $45 million loan.
The lawsuit sought to cancel the deal because LayerZero executives were aware that FTX was already insolvent at the time, and thus, the transaction was fraudulent.
In a September 11, 2023 post on X, Pellegrino disputed the validity of the entire lawsuit, claiming it is “filled with unsubstantiated claims.” He pointed out that LayerZero had been in ongoing communication with FTX liquidators to address share ownership issues, but their attempts were ignored.
Pellegrino specifically challenged claims of having preferential information about FTX’s financial condition prior to its bankruptcy. He mentioned making a substantial deposit of $1 million to the exchange on November 7, just a few days before its bankruptcy filing. He argued that in the cryptocurrency sector, participants exercise caution when rumors circulate and refute any prior knowledge of FTX’s insolvency.
“Anyone involved in this space for a significant amount of time knows that no amount of tail risk is worth inheriting for a largely fungible experience. Exchanges are, for the most part, similar, and when there’s a rumor or uncertainty, it’s best to be cautious until it’s resolved. We had no indication that FTX was insolvent at the time,” Pellegrino asserted.
Pellegrino also criticized FTX’s accounting methods, alleging that they exaggerated debts. He claimed that it is “even worse than SBF’s accounting” that led the exchange to its current state.
He further suggested that the lawsuit might just be a tactic by the FTX’s team to prolong the legal process to generate more fees. He noted that he looks forward to resolving the matter in court.
The lawsuit against LayerZero is the latest in a series of actions FTX’s new management took in recent months to recover funds lost in various transactions conducted by its subsidiaries before its collapse.
The exchange’s latest proposal to restructure has faced backlash from its creditors, who feel excluded from the drafting process. In response, the creditors have warned that they will develop their own plan for FTX customers to vote on if their concerns are not addressed.
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