FTX sues Crypto.com to recover $11.4M linked to Alameda Research

Bankrupt exchange FTX has sued Crypto.com to recover Alameda Research funds. In a lawsuit filed before the US Bankruptcy Court for the District of Delaware, FTX claims that Crypto.com holds $11.4 million belonging to its sister trading firm Alameda and has refused to return it.

According to FTX, Alameda had an account with Crypto.com before the company filed for bankruptcy. Interestingly, the account was opened in the name of Ka Yu Tin (also known as Nicole Tin), a former Alameda employee.

The filing claims that such practice was common with Alameda as the trading firm used shell companies and employees to open accounts on exchanges to mask its trading strategies. However, it maintains that Alameda funded and controlled the account.

Following Alameda Research’s bankruptcy, Crypto.com reportedly locked the account and refused to allow FTX administrators to recover the funds despite multiple attempts.

The filing noted:

“Despite repeated outreach from the Debtors through a wide range of approaches, Crypto.com has refused to cooperate with the Debtors’ requests and continues wrongfully to withhold the Debtors’ property.”

It appears that Crypto.com’s refusal is premised on the fact that the name on the account does not tally with any of the names of those claiming recovery. However, FTX administrators claimed they had explained the situation’s complexity to Crypto.com representatives and even showed court authorization, all to no avail.

FTX seeks injunction to hold on to Crypto.com assets

Interestingly, two of Crypto.com’s parent companies, Foris MT and Iron Block, have also brought claims against FTX, seeking to recover $18.4 million and $237,800 held in two FTX.com accounts before the exchange’s collapse. FTX administrators now want to use this as leverage to recover the Alameda assets.

As part of their prayer for relief, FTX debtors have asked the court to disallow Crypto.com’s claims until the exchange returns the Alameda fund it is currently holding. FTX also asked for the turnover of Alameda assets and for the exchange to cover all its legal costs and other reliefs.

Meanwhile, the lawsuit against Crypto.com continues the proceedings that FTX has instituted against other exchanges in the past few months as it attempts to recover Alameda assets. The bankrupt exchange also filed actions against Gate.io, Upbit, and KuCoin over the same issue, while it settled a similar dispute with Bybit last month.

However, there is no public information on whether FTX has attempted to recover the $400 million in crypto assets stolen from the exchange after the bankruptcy. The funds, which are now worth over $600 million, were stolen through a SIM swap hack by Robert Powell, who has since been apprehended by the authorities and is in home detention.

FTX administrators face criticisms

While the administrators claim the recovery lawsuits are necessary to recover all funds belonging to FTX and Alameda, observers believe that the inefficiencies of John Ray III and Sullivan & Cromwell law firm have led the bankrupt exchange to its current situation.

Some observers have also suggested that these lawsuits only increase the administrators’ billable hours. According to them, the administrators failed to properly wind down all Alameda entities before filing for bankruptcy. As a result, millions of digital assets have been lost on centralized exchanges.

In an X post, the user known as FTX Historian said:

“According to the Examiner’s first report, an estimated “$1.76 billion worth of cryptocurrency” locked, “The cryptos (approximately $130 million as of petition date) on BTCTurk, GATE, Huboi, KuCoin can never be retrieved.”

Meanwhile, the account also noted that the administrators lacked the expertise and knowledge to properly handle the post-bankruptcy recovery for digital assets, which led to further losses. They referenced the former CEO of Alameda Research, Caroline Ellison, who claimed she was sacked immediately after the administrators took over, even though the new team did not have the expertise.