FTX seeks to reclaim $400M
Money invested in obscure hedge fund held by Jpmorgan
After the cryptocurrency exchange FTX collapsed last year, bankruptcy lawyers, federal prosecutors and forensic investigators embarked on a global hunt to recover billions of dollars in lost deposits and repay the firm’s customers.
One large chunk of money has been sitting for months in an interest-bearing account at Jpmorgan Chase, the world’s largest bank. Jpmorgan holds $400 million that FTX’S founder, Sam Bankman-fried, invested in an obscure hedge fund, Modulo Capital, four people with knowledge of the matter said.
The founders of Modulo, which has drawn scrutiny from prosecutors investigating FTX’S implosion, are now negotiating the return of the funds with bankruptcy lawyers representing the exchange, said two of the people, who were not authorized to speak publicly. There is no indication that the Modulo founders did anything wrong, and they are looking for FTX to release them from certain legal liabilities in exchange for returning the money, one of the people said.
The talks show the complexity of retrieving funds in one of the largest corporate bankruptcies in recent history, with an initial shortfall that was estimated at $8 billion. Until late last year, FTX was among the biggest and most powerful companies in the emerging crypto industry, a prolific investor that backed hundreds of other startups. Now investigators have to not only scour company accounts but also untangle a vast web of outside investments — and negotiate to secure the money.
Recovering $400 million from Modulo would be a major coup for FTX. Last month, FTX’S lawyers said they had located $5.5 billion in cash, securities and digital assets held in customer accounts or stored in other parts of the company. But that total includes a large stash of cryptocurrencies whose actual value is hard to determine, and the company’s lawyers say FTX still has a significant shortfall in assets.
FTX is chasing an additional $4.6 billion tied up in more than 300 companies that BankmanFried funded. The $400 million Modulo transaction was one of his largest outlays. But other investments financed fledgling crypto companies that now have dubious value, meaning it’s unclear just how much money FTX lawyers can reclaim from those ventures in so- called clawback lawsuits to make customers, lenders and other creditors whole.
The Modulo funds are stored at Jpmorgan because the bank
served as the hedge fund’s prime broker, handling its trading in stocks and stock futures. In November, around the time FTX collapsed, Modulo’s holdings were converted into cash. The money has been sitting at Jpmorgan ever since.
In recent weeks, FTX’S new management has mounted an aggressive campaign to reclaim money. Last month, FTX sued Voyager Digital, a crypto lending firm, to recover $446 million in loan repayments.
FTX also announced Feb. 5 that it had sent letters to the politicians and political committees that received $93 million from Bankman-fried and others at FTX, asking for the funds back.
Federal prosecutors in Manhattan also have seized assets they contend were acquired with money misappropriated from FTX’S customer accounts. Last month, the prosecutors disclosed that they had seized more than $600 million in assets belonging to Bankman-fried, including cash and stocks kept in bank and brokerage accounts.
It’s unclear why prosecutors have not seized the Modulo funds at Jpmorgan. Representatives for FTX, Jpmorgan and the U. S. attorney’s office for the Southern District of New York declined to comment. A representative for Modulo’s two founders, Duncan Rheingans-yoo and Xiaoyun Zhang, known as Lily, said they declined to comment.