The troubled cryptocurrency exchange, FTX, has initiated legal proceedings against LayerZero Labs, a cross-chain protocol, in a bid to recover $21 million in funds that were allegedly withdrawn illicitly.

This legal battle traces back to transactions involving Alameda Ventures and LayerZero, dating from January to May 2022.

Alameda Ventures, the venture capital arm of Alameda Research and a sister company to FTX, engaged in significant financial transactions with LayerZero during this period.

They made payments exceeding $70 million to acquire a 4.92% stake in LayerZero. Additionally, they acquired $25 million worth of 100 million STG tokens through a public auction in March, with distribution scheduled over six months starting in March 2023.

During these transactions, LayerZero provided a loan of $45 million to Alameda Ventures’ parent company, Alameda Research, in February, with an 8% annual interest rate.

FTX alleges that LayerZero took advantage of Alameda Ventures during a liquidity crisis. FTX’s lawsuit seeks to annul the agreement and recover the funds that were withdrawn just before FTX filed for bankruptcy.

This includes approximately $21.37 million from LayerZero Labs, $13.07 million from former COO Ari Litan, and $6.65 million from subsidiary Skip & Goose.

LayerZero’s CEO, Bryan Pellegrino, responded to the lawsuit by stating that it contains unfounded claims. He mentioned that they had been in ongoing communication with FTX liquidators for nearly a year to address shared ownership concerns, with no response from FTX.

Pellegrino refuted allegations of having preferential information about withdrawals and highlighted significant deposits made close to FTX’s bankruptcy.

He clarified that most withdrawals were for standard business purposes, such as managing gas demands, rather than panic-driven actions based on insider information.

Pellegrino expressed disappointment in the estate’s resorting to mudslinging and asserted their readiness to address the matter in court.