Lawyers for FTX argued that a last-minute fire sale agreement arranged between Alameda Research’s Caroline Ellison and LayerZero was fraudulent and avoidable.

Bankrupt crypto exchange FTX has filed a lawsuit against cross-chain protocol LayerZero Labs, and seeks to recover $21.37 million worth of tokens that the latter withdrew from the exchange in the 90 days leading up to its declaration of bankruptcy.

According to court documents filed on Sept. 9 in the United States Bankruptcy Court in the District of Delaware, Alameda’s venture capital arm paid $70 million in two transactions between January and May 2022 to acquire a 4.92% stake in LayerZero.

In February 2022, LayerZero loaned $45 million to Alameda Research through a promissory note.

Then, in the days leading up to FTX’s bankruptcy, during which time the exchange saw a large volume of withdrawals, insiders at the exchange allegedly negotiated a fire-sale transaction with LayerZero. 

According to FTX’s lawyers, Alameda’s then-CEO Caroline Ellison arranged a share transfer agreement with LayerZero to give back its entire 4.92% equity stake in the platform, in exchange for LayerZero forgiving the $45 million loan to Alameda.

On Nov. 9, Ellison signed a Token Purchase agreement with LayerZero to sell 100 million STG tokens to LayerZero for $10 million. Although this transaction was never completed, LayerZero still attempted to circumvent the automatic stay under Chapter 11 claims and transfer the control of these tokens from Alameda to a wallet they controlled, the lawyers said.

“Ultimately, after facing the prospect of being sued by the Debtors for violating the automatic stay, LayerZero relented and halted its proposed STG token reissuance,” they said. 

Now, FTX is seeking to cancel the agreement, and additionally has filed a claim against LayerZero for certain withdrawals it made during the 90-day pe4riod leading up to its bankruptcy. LayerZero reportedly withdrew large sums of APT, AVAX, BNB, BUSD, FTM, MATIC, USDC and USDT from FTX. The exchange also seeks to recover $13.07 million from LayerZero’s former chief operating officer Ari Litan, and $6.65 million from a subsidiary, Skip & Goose.

FTX alleges four counts of fraudulent transfers, four counts of preferential transfers, one count of disallowance of claims and one count of property recovery against LayerZero.