FTX and Genesis avoid 'costly and uncertain litigation' by reaching $175 million settlement

On Thursday, FTX and Genesis struck a deal to settle claims related to both companies’ ongoing bankruptcies, with Genesis agreeing to pay FTX’s trading arm Alameda Research $175 million. Genesis also agreed to waive all claims against the FTX estate.

After its spectacular collapse at the hands of founder Sam Bankman-Fried in November, the crypto exchange FTX has been seeking to claw back billions of dollars from politicians, hedge funds, and other crypto firms, with the company originally seeking nearly $4 billion from Genesis related to loans from Genesis to Alameda.

Genesis, the lending arm of crypto giant Digital Currency Group, has been embroiled in its own bankruptcy, which began in early 2023. The clawback from FTX has threatened DCG’s ability to pay back other creditors, including Gemini, the crypto firm created by the Winklevoss twins.

The settlement between FTX and Genesis underscores the complex network in the crypto industry, where firms became intertwined through loans, trades, and investments. The collapse of high-profile projects like FTX sent shockwaves through the sector, with its own attempts to repay creditors causing other firms to buckle.

FTX and Genesis were particularly enmeshed, with FTX bankruptcy lawyers stating that Genesis was “one of the main feeder of funds for FTX and instrumental to its fraudulent business model,” with Genesis at one point having over $8 billion in outstanding loans to Alameda.

FTX’s trading arm, and its disastrous positions, were one of the linchpins in the exchange’s collapse, with Bankman-Fried allegedly instructing the firm to use customer deposits to fill holes in its balance sheet. After declaring bankruptcy, the estate—led by former Enron steward John Ray III—began to seek back capital, including loans repaid to Genesis. Meanwhile, Genesis is one of the largest unsecured creditors of FTX, with $226.3 million owed, according to a January filing.

While the $175 million settlement doesn’t represent the full amount FTX attempted to claw back, it still helps simplify the process between the two crypto giants. In the filing to the U.S. Bankruptcy Court for the District of Delaware, FTX’s lawyers wrote that the agreement “fully and finally resolves [the] multi-faceted, multi-jurisdictional litigation” and will replace “costly and uncertain litigation,” as well as prevent a potential battle over where the case should be heard.

In a separate filing on Thursday, Ray endorsed the agreement, describing it as the result of “good faith and arm’s-length negotiations” and arguing it provides “substantial economic benefits” to all parties.

Despite the progress, FTX’s bankruptcy remains one of the most sprawling in U.S. corporate history, with the estate engaged in active lawsuits to claw back funds, including from executives of its own subsidiaries.

A hearing is set for a judge to endorse the agreement on Sept. 13.

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