Lawsuit Alleges ByBit, Several Execs Used Fraudulent Scheme To Withdraw Nearly $1B From FTX Before Collapse

Dubai-based centralized cryptocurrency exchange platform ByBit has been sued by now-bankrupt crypto derivatives exchange FTX in an attempt to claw back nearly $1 billion in funds that were allegedly withdrawn from the latter via a fraudulent scheme before its November 2022 collapse.

The FTX bankruptcy estate, led by current chief executive officer John Ray III, filed the lawsuit in Delaware on Nov. 10, claiming that Mirana Corp., the investment arm of ByBit, had special VIP benefits that it allegedly used to withdraw most of its assets from the platform, which was then led by Sam Bankman-Fried, ahead of its collapse.

The defendants were able to withdraw a whopping $953 million after allegedly pressuring FTX employees to speed up their requests and while regular customers faced delays. The amount reportedly included the $327 million pulled out when withdrawals had already been paused by the platform.

Aside from Mirana, the lawsuit also sued Bybit Fintech Ltd., Time Research Ltd and four of its executives — Sin Wei "Sean" Tan, Wei Lin "Germaine" Tan Weizheng Ye and Nashon Loo Shun Liang — for seizing FTX assets ByBit held and using them as leverage to force FTX to prioritize Mirana's withdrawals.

"Mirana had advantages over the average customer and used every such advantage in furtherance of a fraudulent scheme to have its withdrawal requests prioritized over those of other customers. Among other things, Mirana leveraged its VIP connections to pressure FTX Group employees to fulfill its withdrawal requests as soon as assets became available, further reducing the funds available to meet withdrawal requests by FTX.com's non-VIP customers. In response to Mirana's pressure, FTX Group employees also repeatedly changed Mirana's settings in FTX.com's 'Know Your Customer' ('KYC') system in the days prior to the FTX.com exchange halting customer withdrawals on November 8, 2022," the court filing read.

"After the FTX.com exchange halted customer withdrawals, ByBit seized FTX Group assets held on Bybit's exchange, refusing to release them unless and until Mirana was able to finish withdrawing the entire balance of its FTX.com account," the lawsuit alleged.

The latest lawsuit is just among the many filed by the FTX bankruptcy estate to recover billions in customer funds, which include one filed against Bankman-Fried's parents, Joseph Bankman and Barbara Fried, who have been accused of "siphoning" millions of dollars for their "own personal benefit."

It can be recalled that Bankman is currently financing his son's litigation from the money gifted to him, which was originally his loan from the crypto hedge fund Alameda Research, the controversial cryptocurrency business founded by Bankman-Fried and was later run by his ex-girlfriend Caroline Ellison.