FTX Seeks to Recover $460M From Modulo Capital

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Bahamas-based independent asset manager Modulo Capital is currently being dragged by bankrupt crypto exchange FTX for the massive funds that were invested in its startup.

The Sam Bankman-Fried-owned firm invested in this fund through its sister trading firm Alameda Research. Amidst SBF’s court cases and the firm’s bankruptcy proceedings, FTX is making efforts to recover the $460 million in customers’ funds.

The loan was discovered in the company’s spreadsheet after FTX imploded and Bankman-Fried resigned as Chief Executive Officer (CEO). Noteworthy, the loan was rolled out to the venture capital firm in batches starting in May 2022. At the time, it was regarded as SBF and Alameda’s largest investment in all history. Alameda Research became the owner of 20% of Modulo’s Class A shares as part of the limited partnership agreement.

Modulo And Alameda Relinquish Shares

Modulo Capital was a relatively unknown firm even though it was located in the same community where SSBF and other FTX workers live.

However, FTX clarified that the investment was somewhat linked to SBF than his company. As part of a bankruptcy proceeding, troubled firms can claw back funds given out before their bankruptcy filing and redistribute them to their affected customers.

For unsecured creditors, the ‘clawback’ period is capped at 90 days. However, for those that are regarded as ‘insiders’ including general partners, a one-year clawback period applies. Fortunately, Modulo Capital has agreed to a $404 million settlement in cash with FTX. Before the issue of a refund was raised, the hedge fund held assets worth $56 million on the FTX exchange. 

Going forward, Modulo Capital has decided to relinquish these assets. The Bahamian-based hedge fund will not be the only entity to record a loss as Alameda Research will also lose its claim to Modulo’s shares which it gained from the previous agreement. For now, the latest agreement is still subject to confirmation by U.S. Bankruptcy Judge John Dorsey, and this will happen on April 12th.

In the case of SBF’s arrest and $250 million bail bond, his lawyers are busy preparing a revised package to present to Judge Lewis Kaplan of the Southern District of New York. This became necessary after the young billionaire began leveraging encrypted messaging apps and Virtual Private Networks (VPN) for unauthorized communication.

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