FTX Trust Sues Genesis Digital for $1.15B Over Alleged Fund Misuse

The FTX Recovery Trust has filed a $1.15 billion lawsuit against Bitcoin-mining firm Genesis Digital Assets, accusing it of misappropriating customers’ funds. The lawsuit is one of the largest clawback efforts since FTX’s bankruptcy in 2022. It adds yet another chapter to the industry’s most infamous meltdown.

Alleged Fraudulent Transfers

According to the complaint, Genesis Digital and its co-founders, Rashit Makhat and Marco Krohn, allegedly benefited from fraudulent transfers of customer funds. These transfers originated from mixed and misappropriated assets within the FTX business.

The suit claims that most of these funds were transferred through Alameda Research’s credit lines and bank accounts, including those associated with its subsidiary, North Dimension.

The trust also claimed that FTX founder Sam Bankman-Fried used his personal hedge fund, Alameda Research LLC, to invest in Genesis Digital. The investments were made at what the filing called “outrageously inflated prices” between August 2021 and April 2022.  In return, Alameda allegedly received far less than reasonably equivalent value for its investment.

The complaint further alleges that Bankman-Fried ignored various red flags at Genesis. These include the energy crisis in Kazakhstan affecting its operations, disinterest from other major investors, money laundering, and tax evasion.

Meanwhile, co-founders Makhat and Krohn are said to have “cashed out” of the company by selling large blocks of their shares. Makhat reportedly sold approximately $550.9 million of his shares to Alameda even as the business was losing value. If successful, the case could force Genesis to return more than a billion dollars to the bankruptcy estate. That money would increase the pool available to creditors still waiting for repayment.

FTX Creditors’ Distribution

FTX’s bankruptcy team has been working for nearly two years to recover assets and prepare payouts for creditors. So far, billions have been clawed back through lawsuits, settlements, and asset sales. Earlier this week, the defunct crypto exchange announced it would distribute $1.6 billion to eligible creditors.

Payments are scheduled to begin on September 30 through platforms such as BitGo, Kraken, and Payoneer. They should appear in creditor accounts within one to three business days. This marks the firm’s third major payout since its dramatic collapse in 2022. Meanwhile, Bankman-Fried is serving a 25-year prison sentence after being convicted on seven charges, including fraud and conspiracy.