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FTX reached a deal to recover over $400 million from hedge fund Modulo, which in 2022 received $475 million in seed money from Alameda Research, at the direction of disgraced founder Sam Bankman-Fried

Announcing the move in a bankruptcy court filing, the crypto exchange said Modulo will return about $460 million worth of "shareholder value," including $404 million in cash, without litigation.

Why it matters: This is the first of Bankman-Fried's investments via sister trading firm Alameda to get clawed back — and maybe not the last. 

The big picture: Since the implosion of FTX in early November, it emerged that customer funds had been secretly funneled to Alameda Research by Bankman-Fried. 

The latter, which he mostly owned, had served as a conduit for his various private investment interests, including startups and other funds. 

Flashback: In May 2022, Alameda invested $25 million into Bahamas-based Modulo — founded by former Jane Street employees Xiaoyun Zhang and Duncan Rheingans-Yoo — and later $450 million into its fund. 

Details: As part of the deal, Modulo will pay $404 million in cash, and give up its claim to $56 million in assets held on FTX's crypto exchange. 

FTX and Alameda also agree to give up any claims of ownership of Modulo, and won't take further legal action against the firm and its managers. 

The big question: Which — if any — other of Bankman-Fried's investments could end up giving the money back, likely to avoid lawsuits. 

Go deeper: FTX asks for its political donations back

FTX asks for its political donations back

FTX to claw back over $400 million from hedge fund

The first clawback of an investment by ex-FTX CEO Sam Bankman-Fried.

Illustration of a hundred dollar bill in the shape of the FTX logo 

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

The Federal Reserve's top bank cop Michael Barr on Thursday said banks should be "careful and cautious" in dealings with cryptocurrency assets and the broader crypto sector — the latest sign of the Fed's increasingly wary stance on crypto-related activities within the banking sector.

Why it matters: The recent meltdown in the cryptocurrency sector has had limited spillover to the banks regulated by the Federal Reserve, but the central bank has warned that crypto could one day pose risks to the wider financial system.

What they're saying: "Our overall stance is that, at this stage of the development, banks should take a careful and cautious approach to engaging in crypto-asset related activities and the crypto sector," Barr, the Fed's vice chair for supervision, said at the Peterson Institute for International Economics. It's the Fed official's fifth public speech since being confirmed to the post last summer. 

“We would likely view it as unsafe and unsound for banks to directly own crypto assets on their balance sheets," Barr said.

Barr also said the Fed was working to enhance its supervision of these activities, as well as build a "specialized team of experts that can help us learn from new developments and make sure we’re up to date on innovation in this sector."

The backdrop: The Fed, and Washington more broadly, has taken a tougher stance against crypto-related activities within the banking sector. Earlier this year, the Fed issued a statement alongside other regulators that warned banks that some crypto dealings were "highly likely to be inconsistent with safe and sound banking practices."

Another joint statement, released last month, warned banks of the risks associated with deposits linked to stablecoins, a cryptocurrency meant to be pegged to the U.S. dollar. 

In his speech on Thursday, Barr also warned about risks associated with stablecoins — both to banks, but also to consumers if left unregulated.

"Consider the consequences if a stablecoin not subject to appropriate supervision and regulation were to be adopted as a widespread means of payment, which some stablecoin developers state as a goal," Barr said. 

"An unregulated, unsupervised, deposit-like asset could create tremendous disruptions, not just for financial institutions but for people who might rely on the coin if it were to get wide adoption."

Fed's top Wall Street cop: Banks should be cautious about crypto-related dealings

The Fed's vice chair for supervision said banks should be "careful and cautious" in engaging with the crypto sector.

Michael Barr, vice chair for supervision of the Board of Governors of the Federal Reserve, during a Fed event last year. Photo: Al Drago/Bloomberg via Getty Images

Cryptocurrencies

Stock market

Former FTX engineering director Nishad Singh pleaded guilty in court on Tuesday to six charges relating to his role in the cryptocurrency platform's dramatic collapse. The CFTC and SEC also filed charges against him. 

Why it matters: Prosecutors are moving to strengthen the case against Sam Bankman-Fried, also known as SBF. FTX's disgraced founder is now facing a range of accusations, with the government unveiling four new criminal charges just last week. 

Singh is the latest FTX insider federal prosecutors have charged as part of their investigation into what they describe as a years-long scheme to defraud investors, customers, and lenders. 

SBF, who also co-founded Alameda, was indicted earlier in December and extradited from the Bahamas to the U.S., where he pleaded not guilty to the charges. 

Caroline Ellison, who served as Alameda's CEO, and Gary Wang, FTX’s former CTO, pleaded guilty to their respective charges shortly thereafter. 

Details: Singh pleaded guilty to one count of wire fraud, three of conspiracy to commit fraud, one of conspiracy to commit money laundering and one of conspiracy to defraud the U.S. by violating campaign finance laws. 

What they're saying: "Nishad is deeply sorry for his role in this and has accepted responsibility for his actions. He wants to do everything he can to make things right for victims, including by assisting the government to the best of his ability in this case," Singh's lawyers, Andrew D. Goldstein and Russell Capone, said in a statement. 

What we're watching: Who's next from the FTX universe to face charges over their involvement.

Editor's note: The story has been updated with a statement from Nishad Singh's attorneys. 

Ex-FTX chief engineer pleads guilty to federal charges

Singh is the latest FTX insider federal prosecutors have charged as part of their investigation.

Illustration of a crypto block sitting in the dark, with a red and blue light rotating over it.

Photo illustration: Sarah Grillo/Axios. Photo: Eva Marie Uzcategui/Bloomberg via Getty Images

Pro Rata

Axios Pro Rata

Three major investors in failed crypto company FTX have been sued in California, as part of a class action accusing them of fraudulent and deceptive practices that caused consumer harm. 

The big picture: The plaintiff argues that the investment firms publicly hyped FTX, giving it an "air of legitimacy," and thus are liable for the consequences of its misdeeds. 

The defendants are Sequoia Capital, Paradigm and Thoma Bravo. All three declined comment.

A settlement is unthinkable, given the precedent it would set, which likely means we're heading toward a dismissal or trial.

Go deeper, via TechCrunch's Connie Loizos: "None of what is cited in the complaint is new information. All of it makes the investors look foolish in retrospect. None of it suggests the investors did anything out of the ordinary in terms of their public comments... Is such promotion crime? If it is, the entire industry is guilty of it."

SequoiaCase

FTX investor sues top venture capital firms

A settlement is unthinkable, given the precedent it would set.

Illustration of a cracked coin with the FTX logo on it

Venture capital

A judge on Wednesday denied a previously filed motion by the U.S. trustee, requesting an appointment of a neutral, independent examiner to look into FTX and what led to the crypto exchange's collapse. 

Details: It could cost creditors too much time and money, U.S. bankruptcy judge John Dorsey said during the hearing, estimating expenses at more than $100 million.

Juliet Sarkessian, representing the U.S. trustee, had previously argued that the decision was not in the judge's hands, because it was such a major case. Sarkessian's office did not immediately respond to a request for comment.

Quick take: The judge sided with FTX, whose representatives previously made the same argument. 

Why it matters: The judge is rejecting the request from a federal watchdog, the trustee's office, one supported by U.S. senators and state officials. 

Context: An independent examiner would act like a private investigator of sorts, examining financial statements and interviewing those involved in the situation. 

For example, Celsius Network's bankruptcy judge agreed to grant an independent examiner provided they stay within the scope of an investigation agreed to by Celsius as well as other creditors; that report published just last month showed how insiders inflated the value of its native token. 

The Lehman Brothers bankruptcy also got one. 

Flashback: FTX's new chief John Ray's recent testimony would appear to have landed with the judge. 

Ray said he and his team were qualified to conduct the examinations themselves, and that he did not find examiner's reports particularly helpful in bankruptcies he's overseen before, including Enron's. 

The bottom line: FTX execs and professionals representing them in their bankruptcy proceeding are well compensated for what they bring to the table. 

Judge denies FTX bankruptcy an independent examiner, citing cost

It could cost creditors too much time and money, the judge said during the hearing, estimating expenses at more than $100 million.

John J. Ray III, CEO of FTX. Photo: Nathan Howard/Getty Images

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Fintech Deals

Robinhood announced Wednesday it plans to buy back shares from Sam Bankman-Fried's Emergent Fidelity Technologies, the stock trading company announced Wednesday.

Why it matters: That particular Robinhood stake is currently in legal hell after FTX's implosion.  

Driving the news: Robinhood's board has authorized the purchase of "most or all" of the 55 million shares Emergent Fidelity Technologies acquired last year, it said in its earnings report Wednesday.

Background: Emergent Fidelity Technologies was formed to buy a 7.6% in Robinhood in early 2022. Now however, the stake is being disputed by several players.

Creditors, including BlockFi and Bankman-Fried, all claim to be owed the Robinhood shares, while the stake itself is currently in the hands of the U.S. government.

Bankman-Fried owns about 90% of the entity, while his FTX co-founder Gary Wang owns about 10%.

Of note: The stake in Robinhood was bought by Bankman-Fried when shares were trading around $11.50 a share. Shares were trading around $10.80 in aftermarket trading Wednesday.

Between the lines: There's a chance the repurchase may not happen, given the legal morass.

"Since there is limited precedent for this type of situation, we cannot predict when, or if, the share purchase will take place," the press release read.

The bottom line: Robinhood will be going through a lot more trouble to buy back the stake than Bankman-Fried did to acquire it.

Robinhood plans to buy back shares from Sam Bankman-Fried entity

The transaction's biggest challenge is the legal morass around SBF.

Photo illustration of Sam Bankman-Fried with a Robinhood logo tucked behind his ear.

Photo illustration: Gabriella Turrisi/Axios. Photo: Lam Yik/Bloomberg via Getty Images

Fintech

Bankrupt crypto exchange FTX is sending notices to former donor recipients asking for the donated funds to be returned, the company said in a press release Sunday.

Why it matters: Former FTX CEO Sam Bankman-Fried and FTX Digital Markets Co-CEO Ryan Salame were two of the largest political donors during the last election cycle. Now the company’s debtors want the money back.

Bankman-Fried primarily backed Democrats and was the party’s second-largest donor last cycle with around $37 million in contributions.

Salame’s $19 million to Republicans made him the party’s 10th largest donor.

The big picture: FTX's debtors are confidentially contacting "political figures, political action funds and other recipients of contributions or other payments."

FTX is asking the funds be returned by Feb. 28. The move comes after FTX issued a request in December for fund recipients to voluntarily return the payments.

With regard to payments that are not returned voluntarily, FTX said its debtors "reserve the right to commence actions before the Bankruptcy Court to require the return of such payments, with interest accruing from the date any action is commenced."

FTX warned that recipients making a "payment or donation to a third party (including a charity)" in the amount that they had received from FTX would not prevent FTX from seeking the return of the funds.

State of play: Bankman-Fried resigned in November as FTX filed for bankruptcy.

In New York federal court last month, Bankman-Fried pleaded not guilty to charges of fraud, conspiracy, campaign finance law violations and money laundering.

FTX's debtors are confidentially contacting "political figures, political action funds and other recipients."

Sam Bankman-Fried, co-founder of FTX Cryptocurrency Derivatives Exchange,

Sam Bankman-Fried departs from court in New York on Jan. 3. Photo: Stephanie Keith/Bloomberg via Getty Images

Judge approves unsealing identities of ex-FTX CEO's additional guarantors

The parties have until Feb. 7 to file any objections.

Illustration of quotation marks around a redaction box.

Sequoia Capital partner Alfred Lin said on Thursday at an event in San Francisco that the firm believes it was misled by FTX when it invested in the company. 

Why it matters: Sequoia, which is widely regarded as the most successful venture capital firm in Silicon Valley, has faced a lot of questions over its investment in the collapsed crypto exchange. 

Flashback: Sequoia Capital invested a total of $225 million into FTX in 2021 ($150 million of it came from its $6.5 billion growth fund, the rest from its hedge fund).  

After the exchange's collapse in November, the firm wrote down both investments to zero.  

What he's saying: “We looked at balance sheets and organizational charts of where the subsidiaries were … Alameda [Research] was not in any of the organizational charts,“ Lin told StrictlyVC's Connie Loizos on stage. 

"We asked if those companies are independent and we were told that they were." 

Both FTX and trading firm Alameda Research were founded by Sam Bankman-Fried, though their close relationship (Alameda had the ability to borrow FTX customer funds) was not disclosed. 

Between the lines: "What gets me is not that we made the investment, it's the year-and-a-half of working relationship after the investment and I still didn't see it — and that's difficult," Lin added. 

He also explained that, while in theory Sequoia Capital could have asked for a seat on FTX's board, it owned less than 1% of the company, so it's not something it would have gotten. 

On FTX founder Sam Bankman-Fried, Lin said he feels bad for him that he felt he had to resort to the actions he took to raise funding and prop up the company. But he added that the CEO, who has pleaded not guilty to charges that include fraud and money laundering, will get his day in court and be judged by a jury. 

1 VC thing: Lin also disclosed that Sequoia Capital is currently charging limited partners fees based on capital invested (instead of capital committed) for both its crypto fund and its ecosystem fund. 

Sequoia Capital partner says firm was "misled" by FTX

The firm has faced a lot of questions over its investment in the collapsed crypto exchange.

Alfred Lin of Sequoia Capital speaks onstage during TechCrunch Disrupt NY 2016. Photo: Noam Galai/Getty Images for TechCrunch. 

Disgraced former FTX CEO Sam Bankman-Fried on Tuesday pleaded not guilty to charges of fraud, conspiracy, campaign finance law violations and money laundering in a New York federal court.

Why it matters: Since the crypto exchange began to unravel in early November, Bankman-Fried has publicly claimed he was unaware of the depth of the company's financial troubles, and those at trading firm Alameda Research, FTX's sister company. 

Yes, but: Ex-Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang  pleaded guilty last month to criminal charges, with Ellison acknowledging that she knew what both firms were doing was "wrong." 

What's more: During her plea hearing on Dec. 19, Ellison said that she and Bankman-Fried created misleading financial statements last year for Alameda's lenders, and that the trading firm had "access to an unlimited line of credit without being required to post collateral" or other typical guardrails. 

Wang made similar statements in his own hearing, adding that he was directed to change FTX's code to enable Alameda's borrowing.  

Details: During the hearing, Bankman-Fried was granted a request to publicly redact the identities of the individuals who will co-sign his bond in addition to his parents.

The judge set a trial date for Oct. 2, 2023, though it could be moved. 

He also approved prosecutors' request that Bankman-Fried be prohibited from accessing or transferring any assets from FTX and Alameda, per Inner City Press. 

Prosecutors cited recent reports of Alameda-linked digital wallets transferring out funds, as well as Bankman-Fried's transactions at the request of Bahamian regulators in November. 

Flashback: After a meteoric rise over the past couple of years, FTX quickly collapsed in early November, after it was revealed it didn't have enough funds to fulfill customer withdrawals. 

Since there, it's been revealed that the company had been secretly lending out customer funds to Alameda Research, a trading firm co-founded by Bankman-Fried prior to FTX, for years. 

In turn, Alameda had been making loans to Bankman-Fried and other execs, while misleading investors and lenders about its finances. 

The big question: What's the next shoe to drop? Federal prosecutors hinted last month that more announcements in this case will be coming out. 

Editor's note: This story is breaking and will be updated.

Sam Bankman-Fried pleads not guilty in charges stemming from FTX collapse

The former crypto mogul faces a range of charges stemming from the dramatic collapse of FTX.

Photo of former FTX chief executive Sam Bankman-Fried arriving to enter a plea in Manhattan federal court. 

Former FTX chief executive Sam Bankman-Fried. Photo: ED JONES/AFP via Getty Images. 

All FTX stories