Recent court documents filed on May 3 indicate that FTX is trying to reclaim funds from the bankrupt platform Genesis in the form of repaid loans, withdrawn liquidity, and collateral. The sum in question amounts to over $3.88 billion across all Genesis-affiliated entities. FTX alleges that Genesis enabled their misconduct, resulting in the financial debacle.
The documents suggest that Genesis played a significant role in FTX’s fraudulent business model, being one of its main feeder funds. At one point in 2021, Genesis Global Capital (GGC) had over $8 billion of outstanding loans to FTX Debtor Alameda Research Ltd. Unlike other FTX creditors and customers, Genesis was largely repaid by the embattled exchange. The defense argues that this represents significant avoidance actions in FTX’s Chapter 11 bankruptcy cases.
However, seeking restitution from the largely repaid entity appears counterintuitive to the bankruptcy case’s ultimate goal—making creditors whole again. On the other hand, it is worth noting that $0.188 billion of the attempted clawback represents loans that FTX has already repaid to Genesis, while an additional $273 million represents pledged collateral by Alameda to Genesis.
The most audacious part of FTX’s legal maneuvering is its bid to recover already withdrawn funds by Genesis. According to FTX’s request, over $1.8 billion in Genesis liquidity was withdrawn from FTX platforms. In simpler terms, FTX is asking for Genesis’ money back. This claim comprises $1.6 billion belonging to Genesis itself and $213 million belonging to GGC International, a non-debtor Genesis-affiliated business.
Curiously, the primary issue with FTX’s second attempt isn’t the direct confrontation with those who engaged in business with them, but rather the legal precedent that it sets if the motion passes. If successful, this could embolden other crypto platforms in similar situations to pursue similar recourses, sending shockwaves through the industry. There could be a ripple effect even if FTX fails, as FTX’s bold attempt has opened the door for others in similar positions to test the legal waters for themselves.
In summary, the FTX-Genesis legal battle has far-reaching implications for the broader crypto market. With FTX seeking to reclaim funds from Genesis, the outcome could influence how other crypto platforms approach bankruptcy and legal disputes in the future. While at first glance, this is just another case of a company trying to recover its funds, the potential consequences of FTX’s legal gambit may impact the larger crypto community in ways that cannot yet be entirely foreseen.