FTX Attempts $3.9 Billion Clawback from Genesis

Court documents filed on May 3 reveal FTX is attempting to claw back funds in the form of repaid loans, withdrawn liquidity, and collateral from fellow bankrupt platform Genesis.

The total sum at stake amounts adds up to over $3.88 billion across all entities affiliated with Genesis.

Accused of Enabling FTX’s Misconduct

In the documents filed by FTX’s lawyers in court on May 3, it is claimed that Genesis was one of the main culprits allowing the FTX Group to get away with their downright rash behavior. The bankrupt exchange’s legal team further attempts to legitimize their motion by claiming that, unlike other FTX creditors, Genesis was largely repaid.

Genesis was one of the main feeder funds for FTX and instrumental to its fraudulent business model. 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 repaid to a large extent.

“The FTX Debtors’ Avoidance Claims against Genesis relating to certain of those repayments represent significant avoidance actions in the FTX Chapter 11 Cases.”

Considering that the whole point of a bankruptcy case is to make creditors whole again, this would seem rather counterintuitive.

Nevertheless, $.188 billion of the attempted clawback represent loans repaid to Genesis by the FTX Group, a similar “strategy” to the one used in another lawsuit filed by the FTX Group against yet another bankrupt crypto platform, Voyager. A further $273 million attempt represents the pledge of collateral by Alameda to Genesis, which was apparently used for the purpose that collateral is supposed to serve, by definition.

Withdrawn Assets at Stake too

However, the most brazen part of the clawback attempt is the request to have returned funds that were already withdrawn by Genesis.

As stated in the FTX Group’s request, over $1.8 billion in Genesis liquidity were withdrawn from FTX platforms. To put it plainly, FTX wants Genesis’ money back.

Of this claim, $1.6 billion in assets belonged to Genesis itself, and a further $213 million belonged to GGC International, a Genesis-affiliated business that is even classified as a non-debtor in the case, which makes the attempt even more shocking.

FTX moves to claw back $3.9 billion from Genesis.

1. $2.1 billion loan repayments/collateral pledge
2. $1.8 billion FTX exchange withdrawals pic.twitter.com/1SsW8yoPck

— FTX 2.0 shareholder (in spe) (@AFTXcreditor) May 3, 2023

Unfortunately, the real issue with this second attempt is not simply the FTX Group’s pistols-at-dawn approach towards anyone who had previously engaged in business with it, wrongly assuming that they had done their due diligence.

The real problem with this second attempt is that it creates a legal precedent if the motion actually passes. Even if it is denied, other crypto platforms in similar situations may feel justified to make identical attempts now that the Rubicon has been crossed.