Jump Trading Drags FTX Estate to Court Over $264M Serum Token Loan

Jump Trading's Tai Mo Shan subsidiary is seeking nearly $264 million in damages over a failed delivery of SRM tokens – more than the protocol's current market cap.

Bankrupt crypto exchange FTX's estate is disputing a claim from Jump Trading's Tai Mo Shan over an undelivered loan of 800 million Serum (SRM) tokens, arguing that the loan never commenced.

Tai Mo Shan, a subsidiary of Jump Trading, filed a proof of claim in the FTX bankruptcy case, seeking damages of over $264 million for the undelivered SRM tokens. The bankruptcy estate, however, has filed an objection to the claim, arguing that Alameda, the quantitative trading firm owned by FTX founder Sam Bankman-Fried, never delivered the tokens as specified in the loan agreement.

"It is undisputed that Alameda failed to deliver the cryptocurrency contemplated by the Loan Confirmation to the Master Loan Agreement. The loan therefore did not commence," lawyers for the FTX-Alameda estate wrote in their objection. "The Master Loan Agreement gives Tai Mo Shan one remedy when a loan does not commence: voiding the applicable Loan Confirmation."

The estate is also disputing the valuation amount presented by Jump, arguing that Tai Mo Shan's damages calculation is "wholly unsupportable" and based on a flawed "options model." The estate did not provide an explanation or documentation to support this claim.

"Tai Mo Shan's damages calculation is wholly unsupportable and appears to be based on a deeply flawed 'options model,'" the lawyers wrote. "The Master Loan Agreement and Loan Confirmation provide that Tai Mo Shan was to receive 800 million SRM Tokens for no fee and no interest. This is highly unusual, to say the least."

The lawyers also allege that Tai Mo Shan might have engaged in fraudulent transfers.

"For the reasons stated here and more following discovery, Tai Mo Shan may be liable to the Debtors for fraudulent transfers," the court filings read. "The debtors submit that Tai Mo Shan may have been the recipient of certain constructively fraudulent transfers...including the purported loan at issue here."

The estate is requesting that the court void the loan agreement, dismiss Tai Mo Shan's proof of claim, and deem the subsidiary to be an unsecured creditor of the FTX estate.

In its initial bankruptcy filing, FTX listed Jump among its top 50 creditors, with a claim of over $250 million. The creditor list also showed that Alameda had an outstanding loan of $499 million to Jump at the time of FTX's bankruptcy.

SRM was the native token of the decentralized exchange (DEX) Serum. Jump Trading announced in the fall of 2020 that it had made a significant investment in Serum and would provide market making services. The DEX collapsed after FTX went bankrupt in November 2022, and at the time, insiders told CoinDesk that the exchange was decentralized in name only as orders came from FTX.

Market data shows that the 800 million SRM tokens would account for approximately 80% of the roughly 1 billion SRM in existence and more than the 372.7 million current circulating supply. The token was scheduled to have a max supply of over 10.1 billion tokens, but this was cut short due to its demise in 2022.

In court documents, Jump Trading argued that the FTX-Alameda estate owes it more than $264 million in damages based on an options model. The options model uses the market price of SRM on the bankruptcy filing date, the repayment option price, SRM's implied volatility, and the interest rate on the loan, among other factors, to calculate the damages owed to Tai Mo Shan.

The estate challenged this valuation, arguing that it is "wholly unsupportable" and based on a flawed "options model" without providing an explanation or documentation to support this claim.

"Tai Mo Shan's damages calculation is wholly unsupportable and appears to be based on a deeply flawed 'options model,'" the lawyers wrote. "The Master Loan Agreement and Loan Confirmation provide that Tai Mo Shan was to receive 800 million SRM Tokens for no fee and no interest. This is highly unusual, to say the least."

The lawyers also allege that Tai Mo Shan might have engaged in fraudulent transfers.

"For the reasons stated here and more following discovery, Tai Mo Shan may be liable to the Debtors for fraudulent transfers," the court filings read. "The debtors submit that Tai Mo Shan may have been the recipient of certain constructively fraudulent transfers...including the purported loan at issue here."

The lawyers also argue that the Master Loan Agreement and Loan Confirmation provide that Tai Mo Shan would receive 800 million SRM tokens for no fee and no interest, which is questionable.

"There are no contract provisions specifying any amount of collateral or consideration given by Tai Mo Shan in return for the alleged loan," they write.

Edited by Zack Seward

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