Crypto exchange FTX is currently in talks with Modulo Capital, a relatively unknown hedge fund, to recover a $400 million investment made by FTX’s founder, Sam Bankman-Fried.

According to sources cited by The New York Times, FTX’s new leadership is negotiating the return of the funds.

Modulo Capital is a multi-strategy hedge fund that was established in 2022 by two former traders from Jane Street, where Bankman-Fried previously worked before entering the crypto industry.

Following FTX’s collapse, Modulo’s holdings were converted to cash and stored in an interest-bearing account with JPMorgan, the fund’s prime broker.

The report indicates that Modulo is requesting to be released from certain legal obligations in exchange for the return of the funds. Public filings indicate that FTX and its sister company, Alameda, were located in the same luxury condominium complex as Modulo and operated from the Bahamas.

The fund’s founders, Duncan Rheingans-Yoo and Xiaoyun Zhang, have reportedly hired a criminal defense lawyer to represent them in this matter.

The US government is reportedly seeking to take control of almost $700 million in assets seized from Bankman-Fried in January, but the reason why the Modulo funds have not been seized is unclear.

Representatives for FTX, JPMorgan, and the US Attorney’s Office for the Southern District of New York declined to comment when contacted by The New York Times.

This situation highlights the importance of conducting thorough due diligence when investing in lesser-known hedge funds and the potential risks associated with it.

With FTX and Bankman-Fried’s ongoing legal disputes, investors will undoubtedly keep a close watch on the outcome of the discussions with Modulo.