The lawsuit alleges that Bybit and its affiliates used VIP connections to prioritize withdrawals and withheld $125 million from FTX.
FTX and Alameda bankruptcy advisors accuse cryptocurrency exchange Bybit, two of its corporate affiliates and four executives of fraud in a lawsuit filed on November 10. The lawsuit alleges that the defendants used a "fraudulent scheme" to withdraw cash and assets from the FTX platform just before it collapsed.
FTX seeks to recover $953.2 million that the defendants fraudulently withdrew in the 90 days before bankruptcy. The lawsuit names Bybit’s investment arm Mirana and Mirana’s cryptocurrency trading company Time Research as two corporate defendants in addition to Bybit.
Under Chapter 11, FTX has the right to recover funds paid in the 90 days before filing for bankruptcy. The law was designed to prevent certain creditors from receiving windfalls simply because they succeeded in taking out funds when other creditors failed.
Mirana uses its VIP status to get priority withdrawals
According to the lawsuit, Mirana was an active trader on the FTX platform with an account balance of “hundreds of millions of dollars.” The lawsuit states that Mirana's trading activity and its relationship with Bybit earned it "preferential treatment" compared to ordinary customers.
Mirana was granted “VIP” status, giving access to FTX Group employees and concierge support. When concerns arose about FTX’s financial health, Mirana used its privilege to prioritize its withdrawal requests as individual FTX customers struggled.
The lawsuit states:
“Mirana used its VIP connection to pressure FTX Group employees to fulfill withdrawal requests as soon as assets became available, further reducing the funds available to fulfill withdrawal requests from FTX.com’s non-VIP customers.”
The lawsuit states that due to pressure from Mirana, FTX employees "repeatedly changed" Mirana's settings in FTX's know-your-customer (KYC) system before withdrawals were frozen.
Bybit allegedly used its control of FTX assets as leverage
The lawsuit alleges that after FTX stopped customer withdrawals on November 8, 2022, Bybit used FTX’s assets on the Bybit platform to force FTX to release Mirana’s account balance. It states:
“Bybit has seized FTX Group assets held on the Bybit exchange and refuses to release them unless Mirana is able to complete the withdrawal of the entire balance of its FTX.com account.”
Repeatedly engage in illegal activities
FTX bankruptcy advisors claim that even after filing for Chapter 11 bankruptcy protection, Bybit and its affiliates "continued to engage in unlawful actions" to position themselves over other FTX creditors. The lawsuit states that the defendants "repeatedly violated the automatic global stay" on FTX assets.
First, Bybit seized over $125 million in FTX assets. Bybit “insists” that FTX will only be allowed to withdraw funds after approximately $20 million has been transferred to Mirana (i.e., FTX’s balance at the time of Mirana’s collapse).
Second, Mirana and Bybit allegedly attempted to cap and devalue “tens of millions of dollars in cryptocurrency tokens” held by FTX.
The lawsuit against Bybit is the latest attempt by FTX’s new management to recover funds paid out before filing for bankruptcy.