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FTX Wants to Clawback VC Funds Invested in Modulo Capital

FTX Wants to Clawback VC Funds Invested in Modulo Capital

Modulo Capital, an investment firm established by three former Jane Street executives, is facing a request by the FTX Group to return VC investments received from Alameda Research.

Old Friends

Xioayun “Lily” Zhang and Duncan Rheingans-Yoo, the executives involved, were colleagues of Sam Bankman-Fried during his tenure at Jane Street before leaving to create their own investment firm. Recent reports by The New York Times have uncovered two significant details about Modulo Capital.

Firstly, Xioayun “Lily” Zhang may have had a romantic relationship with SBF, based on sources that wished to remain anonymous.

Secondly, Modulo Capital may have been almost exclusively funded by the FTX Group. The NYT report indicates that the firm began trading in cryptocurrency before FTX’s downfall and has since ceased operations.

Two Rounds of Seed Capital

Even though FTX Group’s cryptocurrency funding records are clear, the brand’s VC investment checkbook remains murky, and the new CEO is still working to resolve the matter. According to the Financial Times, FTX Group invested twice in Modulo Capital, initially pledging $150 million, quickly followed up by another $250 million.

The current clawback request is for $475 million. Court documents suggest that, assuming the deal is approved by the judge presiding over FTX’s bankruptcy case, paying back this sum would almost entirely extinguish Modulo’s capital.

“The Debtors’ entry into the Agreement is in the best interests of their estates, creditors and stakeholders, and should be swiftly consummated. The Agreement’s terms will provide the Debtors’ estates significant value representing 99% of the Modulo Entities’ remaining assets and 97% of the original transfers from the Alameda Debtors to the Modulo Entities (after considering expenses and trading losses).”

This statement adds weight to the theory that the FTX Group bankrolled Modulo Capital mostly.

Modulo’s leaders have reportedly agreed to the clawback conditions to avoid incurring legal fees. In exchange, the FTX Group will renounce any claims to Modulo Capital shares.

FTX owes its debt holders over $11 billion. With the deal’s approval, funds returned from Modulo would cover around 7% of the deficit. The FTX Group is likely to pursue other clawback requests, having already tried to pursue similar action against Voyager, and has announced its intention to go after donations to political candidates.