FTX negotiates $400 million return of Obscure Hedge Fund

Federal prosecutors in Manhattan also seized assets they believe were acquired with money misappropriated from FTX client accounts. Last month, prosecutors revealed they had seized more than $600 million in assets belonging to Mr. Bankman-Fried, including cash and stocks held in bank and brokerage accounts.

It’s unclear why prosecutors didn’t seize the Modulo funds at JPMorgan. Representatives for FTX, JPMorgan and the U.S. Attorney’s Office for the Southern District of New York declined to comment. A representative for the two Modulo founders, Duncan Rheingans-Yoo and Xiaoyun Zhang, known as Lily, said they declined to comment.

FTX filed for bankruptcy in November after a run on filings exposed the $8 billion hole in its accounts. Mr Bankman-Fried, 30, has resigned as chief executive, handing over control to a new management team.

In December, federal prosecutors in Manhattan charged Mr. Bankman-Fried with fraud, money laundering and campaign finance violations. He has been accused of using billions of dollars in customer deposits to fund lavish real estate purchases, political donations and investments in other businesses. Two of his closest associates have pleaded guilty and are cooperating with the authorities.

Prosecutors quickly began examining Modulo. Ms. Zhang, a 2012 graduate of Amherst College, worked for a decade at Jane Street, a global quantitative and proprietary trading firm, before launching Modulo. Mr. Rheingans-Yoo also worked at Jane Street, which he joined in 2020 after graduating from Harvard.

Ms. Zhang and Mr. Rheingans-Yoo have close personal ties to Mr. Bankman-Fried, who began his career at Jane Street. Modulo was incorporated last spring in the Bahamas, where FTX was also based. And he operated out of the same luxury resort on the Bahamian island of New Providence where Mr Bankman-Fried lived with some of his top lieutenants.

The $400 million deal also drew suspicion as Mr. Bankman-Fried made the investment shortly before FTX’s implosion. After his arrest in December, a local Bahamian prosecutor argued during a bail hearing that the FTX founder may still be able to tap funds he sent to Modulo, making him a risk leak. In a January 17 court filing, attorneys for FTX flagged the $400 million investment in Modulo as a likely target for recovery efforts.