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Court filings submitted on May 3 indicate that FTX is seeking to recover funds in the form of repaid loans, withdrawn liquidity, and collateral from the bankrupt platform Genesis.
The total amount involved exceeds $3.88 billion across all entities connected to Genesis.
Accused of Facilitating FTX’s Misconduct
In the filings made by FTX’s attorneys in court on May 3, it is asserted that Genesis played a significant role in enabling the FTX Group to engage in their reckless conduct. The legal representatives of the bankrupt exchange further seek to substantiate their motion by arguing that, in contrast to other FTX creditors, Genesis received a substantial portion of repayment.
Genesis served as a primary feeder fund for FTX and was crucial to its fraudulent business operations. At one point in 2021, Genesis Global Capital (GGC) had over $8 billion in outstanding loans to FTX Debtor Alameda Research Ltd. Unlike other creditors and customers of FTX, Genesis was largely repaid.
“The FTX Debtors’ Avoidance Claims against Genesis concerning certain of those repayments represent significant avoidance actions in the FTX Chapter 11 Cases.”
Given that the primary goal of a bankruptcy case is to restore creditors, this approach appears somewhat contradictory.
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Nonetheless, $0.188 billion of the clawback efforts pertain to loans repaid to Genesis by the FTX Group, reflecting a similar “strategy” to that employed in another lawsuit filed by the FTX Group against another bankrupt crypto entity, Voyager. An additional $273 million claim involves collateral pledged by Alameda to Genesis, which was reportedly utilized for its intended purpose, as defined.
Withdrawn Assets Also in Question
However, the most audacious aspect of the clawback effort is the demand for the return of funds that Genesis has already withdrawn.
According to the FTX Group’s request, over $1.8 billion in liquidity from Genesis was withdrawn from FTX platforms. In straightforward terms, FTX is seeking to reclaim Genesis’ funds.
Of this claim, $1.6 billion in assets were owned by Genesis itself, while an additional $213 million belonged to GGC International, a Genesis-affiliated entity classified as a non-debtor in the case, making the request even more surprising.
Unfortunately, the core issue with this second attempt is not merely the FTX Group’s aggressive stance towards anyone who previously conducted business with it, mistakenly presuming that they had exercised due diligence.
The real concern with this second attempt is that it sets a legal precedent if the motion is approved. Even if it is rejected, other crypto platforms in similar circumstances may feel justified in making comparable attempts now that this threshold has been crossed.
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