FTX Wants to Clawback VC Funds Invested in Modulo Capital

Modulo Capital, an investment firm created by three former Jane Street executives, has been dealing with a request from the FTX Group for the return of VC investments received from Alameda Research.

Old Friends

The executives in question, Xioayun “Lily” Zhang and Duncan Rheingans-Yoo, were known to Sam Bankman-Fried from his stint as an employee of Jane Street, and later left to create their own investment firm. However, two notable things have been discovered about the firm by The New York Times.

First of all, Xioayun “Lily” Zhang appears to have been romantically involved with SBF, according to unnamed sources allegedly familiar with the matter.

Bankman-Fried’s girlfriend? Xiaoyun “Lily” Zhang, used to be romantically involved with Bankman-Fried, according to four people familiar with their relationship. her partner, Duncan Rheingans-Yoo, had only graduated from Harvard two years before SBF’s investment. That’s textbook

— 9:29 (@GuitarSunCat) January 25, 2023

Second of all, it appears that Modulo Capital may have been nearly entirely funded by the FTX Group. According to the same report by NYT, Modulo began trading in cryptocurrency prior to FTX’s collapse, and has now, for all intents and purposes, ceased operations.

Two Rounds of Seed Capital

Although the FTX Group’s crypto investment checkbook is a mess that the new CEO is still trying to untangle, FTX VC investment records are far clearer due to reporting requirements. According to the Financial Times, the FTX Group made two separate investments with Modulo Capital, initially pledging $150 million, which was swiftly followed up by another $250 million.

The current clawback request, however, aims for the figure of $475 million. Furthermore, court documents suggest that, assuming the deal is approved by the judge presiding over FTX’s bankruptcy case, paying back this sum would almost completely wipe out any capital Modulo has.

“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 lends credence to the aforementioned theory that Modulo Capital was almost completely financed by the FTX Group.

Modulo’s leadership has allegedly agreed to the terms of the clawback, which would spare both sides from having to deal with legal expenses. In return, the FTX Group would renounce all claims to Modulo Capital shares.

FTX currently owes its creditors over $11 billion dollars. If the deal is approved, funds returned from Modulo would cover about 7% of the shortfall. Future clawback requests are likely to follow, as the FTX Group has already tried to pursue similar action against Voyager and has announced its intention to go after donations made to political candidates.