KuCoin Faces Lawsuit from FTX’s Alameda Research for $50 Million Asset Recovery

Alameda Research Takes Legal Action Against KuCoin: A Battle for $50 Million in Assets

Alameda Research is escalating its recovery efforts with a lawsuit against crypto exchange KuCoin, aiming to reclaim over $50 million in frozen assets linked to the notorious collapse of FTX.

This legal move comes amidst a backdrop of ongoing bankruptcy proceedings for FTX, which filed for Chapter 11 in November 2022.

The complaint was lodged in the United States Bankruptcy Court for the District of Delaware, the same court managing FTX’s bankruptcy case.

What Led to KuCoin’s Reluctance to Release Funds?

The core of Alameda's lawsuit hinges on KuCoin's refusal to release the assets, which were initially valued at $28 million before market fluctuations drove their worth above $50 million.

The filing reveals that these funds have been inaccessible since FTX’s downfall, frustrating efforts to repay creditors.

Alameda's document states:

“KuCoin has without justification refused to turn over the assets in the Account to the Debtors, despite numerous requests.”

It alleges that this refusal constitutes a violation of the US Bankruptcy Code.

Since the assets are part of the FTX estate, their return is critical for addressing outstanding debts owed to creditors.

The court filing, dated 28 October 2024, asserts that Alameda has made multiple attempts to engage with KuCoin regarding the release of these funds.

According to the lawsuit,

“On November 16, 2022, the now-CEO of the Debtors sent a letter to KuCoin’s CEO, copying KuCoin’s legal team, requesting that the assets in the Account be secured and seeking to coordinate the transfer of the assets in the Account to the Debtors.”

Despite numerous follow-ups over the next two months, including outreach to various KuCoin departments, the requests were met with silence.

How is KuCoin Responding?

In response to the allegations, KuCoin explained that the assets were frozen due to the “identification of suspicious activities.”

The exchange stated it had made “multiple attempts to contact the account holders directly to resolve” the issue but lamented that these efforts had not elicited any replies.

KuCoin emphasised,

“We will strictly adhere to the order issued by the law enforcement authority and under no circumstances will misappropriate any user assets.”

Progress in FTX’s Bankruptcy Proceedings

While Alameda is fighting to unlock these assets, FTX has recently made strides in its recovery efforts.

On 24 October 2024, the bankrupt estate reached a significant settlement with Bybit, agreeing to dismiss its lawsuit against the exchange.

This deal secures FTX up to $175 million in asset recovery and includes the sale of BIT tokens to Bybit’s investment arm, Mirana, for more than $50 million.

This influx is expected to bolster the estate's repayment capacity, as FTX anticipates recovering over $16 billion for its creditors.

As part of these efforts, the bankrupt estate currently holds more than $1 billion in Solana, with Alameda redeeming 178,631 SOL tokens valued at approximately $128 million in a recent transaction.

However, the repercussions of the FTX debacle continue to unfold.

Earlier in October, Caroline Ellison, the former CEO of Alameda, received a two-year prison sentence for her involvement in the fraud, a lenient outcome attributed to her cooperation with the authorities against Sam Bankman-Fried.

The founder of FTX is serving a 25-year prison term for multiple fraud and money laundering charges.

What Lies Ahead for Alameda and KuCoin?

As Alameda pursues its claims against KuCoin, the outcome remains uncertain.

The ongoing legal battle exemplifies the complexities and challenges of asset recovery in the aftermath of FTX's catastrophic collapse.

The future implications for both Alameda Research and KuCoin will undoubtedly be significant, affecting not only the entities involved but also the broader cryptocurrency landscape as it grapples with the consequences of the FTX scandal.