The administrator of bankrupt crypto exchange FTX is on a suing spree after filing 22 adversary actions on November 8, targeting various entities and individuals. With the most recent legal actions, the FTX Debtors have filed 51 lawsuits since November 11, 2022, with 30 of those actions coming in the last 10 days.
According to information from the FTX bankruptcy docket, most of the new lawsuits targeted non-profit organizations that FTX or its executives have donated to in the past and who are unwilling to return the funds. FTX is suing 26 non-profits and seeking to recover funds ranging from $10 million to as low as $75,000 from them.
Most of these organizations are political action groups (PACs) on both sides of the aisle, and If all the courts grant FTX claims in all the proceedings, the failed exchange will claw back $55.275 million. However, whether all the proceedings would be successful is a different question altogether.
According to crypto investor Thomas Braziel, US bankruptcy law allows donations to be recovered under some circumstances. What would matter here is determining whether the donations are immune to clawback.
He said:
“Under US bankruptcy law, charitable donations can be clawed back if they’re made with the intent to defraud creditors or without receiving equivalent value. Often, this comes up when funds were donated while the donor was insolvent.”
Since FTX administrators have already pursued these donations, the bankruptcy trustee believes they can recover the funds. However, some creditors believe that not all these lawsuits are worth the financial costs incurred for the FTX estate, and they just seem like efforts by lawyers to earn more billable hours.
FTX goes after Storybook Brawl team for $25 million
Meanwhile, the FTX estate sued the team behind Storybook Brawl, a video game FTX co-founder Sam Bankman-Fried invested in and promoted. The casual strategy game has been around since June 2021 but was acquired in March 2022 by SBF and FTX Ventures to incorporate Web3 features into the game.
However, it shut down on May 1, 2023, due to FTX bankruptcy. Even before shutting down, the game has faced headwinds, with most players unhappy with FTX’s acquisition. The Storybook Brawl team might now be forced to return the $22 million investment and the $2 million in salaries and bonuses FTX paid to the team when it acquired the project
In addition to Storybook, FTX has sued Jean Chalopin, the chairman of Deltec Bank, to recover $11.5 million. FTX had invested the amount in FBH Corporation, a bank holding company led by Chalopin, which acquired Farmington State Bank in 2020. The exchange also sued American financier Anthony Scaramucci.
FTX lawsuit uncovers $1 billion in losses traced to one individual
Meanwhile, one of the clawback lawsuits targets an alleged criminal who has been defrauding FTX since 2021. One of FTX’s creditors, Louis Origny, posted a thread on X explaining how this individual, Meerun, has been manipulating the markets on FTX since January 2021.
The trader reportedly bought about half of the supply of BMTX, a token linked to Bitmax, and increased the token’s value by more than 10,000% with his purchase. He then borrowed hundreds of millions of dollars on FTX using the leverage function, with his BMTX holdings serving as collateral, withdrawing millions worth of stablecoins and other cryptocurrencies from FTX.
Although Bitmax warned FTX about the incident, FTX failed to take any action, allowing Meerun to manipulate several tokens on its platform, including Mobile Coin (MOB), which he shorted. FTX merely asked him to post more collateral, which he failed to do while he continued to withdraw. FTX eventually locked the account but forgot to block withdrawals, allowing him to withdraw $450 million from his position on BTMX before stopping him.
However, the FTX management team covered the losses and internalized them to Alameda Research. Still, Meerun was able to run the same scam on other altcoins by opening new FTX accounts. In total, Alameda lost more than $1 billion to Meerun, who, despite his actions, still filed a proof of claim to recover $12 million in the FTX bankruptcy case. This allowed the FTX administrators to identify his real name and address fully.
Interestingly, the same individual has been identified as Humpty the Whale, who attacked DeFi protocol Aave and tried diverting $20 million from its treasury. FTX’s lawsuit further claimed that its investigations had identified Meerun to be involved in money laundering and Ponzi schemes with ties to organized crime networks and terrorist groups.
