FTX sues ByBit to claw back nearly $1 billion; alleges 'fraudulent scheme'

The FTX bankruptcy estate, led by CEO John J. Ray III, has sued the exchange ByBit, its investment arm Mirana, and several of its executives, seeking to claw back cash and digital assets ByBit withdrew from FTX on the eve of its collapse, now worth nearly $1 billion.

The lawsuit alleges that ByBit leveraged its "VIP" access to FTX, as well as its close relationship with FTX staff, in order to withdraw hundreds of millions in cash and digital assets from the accounts of Mirana, Time Research (another ByBit-affiliated entity), and several senior executives on the eve of FTX's collapse. 

According to the lawsuit, as FTX struggled to meet withdrawals in November 2022, FTX employees tracked withdrawal requests from VIP customers in a spreadsheet titled "VIP Request – Prioritize (Settlement)," and that "​​FTX Group’s settlement team went to great lengths to prioritize Mirana’s 'many huge withdrawals,' resulting in more than $327 million in transfers to Mirana." The total value of the assets ByBit and its executives were able to withdraw from FTX has grown to nearly $1 billion, the lawsuit claims. 

ByBit has also restricted the FTX estate from withdrawing assets worth more than $125 million that it holds on the ByBit exchange, according to the lawsuit. ByBit "has continued to hold these assets hostage as leverage," the lawsuit alleges, in an attempt to recover a remaining balance of $20 million it was unable to withdraw from FTX before its collapse. 

The BitDAO allegations

The lawsuit also alleges that, in October 2021, a ByBit executive "privately explained" to FTX that the company controlled BitDAO, now known as Mantle, despite presenting BitDAO as a decentralized organization run by community members. 

The admission allegedly came in the context of a token swap in which Alameda Research, FTX's trading entity, received 100 million BIT tokens in exchange for about 3.4 million FTT tokens. Then, in May 2023, ByBit approached the FTX bankruptcy estate about "unwinding," or reversing, the transaction, despite the fact that the value of the BIT tokens, approximately $50 million at the time, far outweighed the value of the FTT tokens, approximately $4 million at the time. 

After the FTX estate rejected the "facially absurd proposal," the lawsuit alleges BitDAO announced shortly after that it would be rebranding as Mantle and issuing new MNT tokens, with BIT holders given the chance to convert their tokens at a 1:1 ratio. However, after FTX started converting their tokens, BitDAO "immediately disabled the token conversion process" and held a "community vote" to decide whether or not to restrict FTX from converting its tokens.

The lawsuit alleges that FTX informed ByBit the measure constituted a violation of the automatic stay put in place in Chapter 11 bankruptcy cases. However, the "community vote" passed, aided by votes from accounts seemingly linked to ByBit executives. The lawsuit points out that the fifth-largest vote in favor of the proposal, weighted by token holdings, was made by the wallet "dtoh.eth," labeled Mirana Ventures, a Mirana subsidiary headed by David Toh. 

The lawsuit is seeking "actual and punitive damages" from ByBit in relation to the token scheme and the funds held by ByBit on its exchange. ByBit did not immediately respond to a request for comment.