Cryptocurrency giant Genesis, an arm of the Digital Currency Group, has struck a $175 million settlement with the beleaguered crypto exchange FTX.
The deal, part of a broader effort to resolve claims connected to the ongoing bankruptcy issues of both firms, marks a significant step forward as they seek to recover from their respective financial challenges.
The cryptocurrency industry is notorious for its complexity and interconnections, and the situation involving FTX and Genesis is no exception. After its stunning collapse under founder Sam Bankman-Fried in November 2022, FTX had sought to claw back billions from politicians, hedge funds, and other crypto entities, including almost $4 billion from Genesis tied to loans made to Alameda Research, FTX’s trading arm.
Genesis acted as “main feeder”
Genesis, wrestling with its bankruptcy initiated earlier this year, had played a crucial role in funding FTX’s operations. FTX bankruptcy lawyers argued that Genesis had acted as “one of the main feeders of funds for FTX and instrumental to its fraudulent business model.” Genesis had extended over $8 billion in outstanding loans to Alameda at the height of their intertwined operations.
Settlement: A win for both sides
The agreement now reached between FTX and Genesis is a mutually beneficial move. Genesis has agreed to pay FTX’s trading arm Alameda Research $175 million as part of the deal and waive all claims against the FTX estate. This helps FTX as it continues its ongoing efforts to repay creditors, a ripple effect of their collapse that has put additional stress on other firms within the cryptocurrency sector.
For Genesis, this deal removes one of the many hurdles it faces in its ongoing bankruptcy proceedings, allowing it to navigate its path to solvency better. As a significant unsecured creditor of FTX, Genesis had $226.3 million owed to it as of a January filing. The settlement allowed Genesis to streamline the process and end costly and uncertain litigation, which would have substantially drained its resources at a crucial time.
In documents filed with the U.S. Bankruptcy Court for the District of Delaware, as per Fortune, FTX’s lawyers highlighted that the agreement “fully and finally resolves the multi-faceted, multi-jurisdictional litigation.” This sentiment was echoed by John Ray III, a former Enron steward now leading the FTX estate, who endorsed the settlement and praised it as a product of “good faith and arm’s-length negotiations,” which provides “substantial economic benefits” to all parties involved.
Despite the progress made with this settlement, the fallout from FTX’s collapse continues to unravel. Sam Bankman-Fried, FTX’s founder, faces seven charges, including securities fraud, wire fraud, commodities fraud, and money laundering. His trial is looming, and his attorneys are sorting through discovery materials to determine which will be used in court. Bankman-Fried’s legal issues have only compounded the difficulties the crypto entities linked to FTX faced.
The wider impact
FTX’s bankruptcy remains one of the most complex in U.S. corporate history. Beyond the settlement with Genesis, the FTX estate is still actively pursuing lawsuits to claw back funds, including from executives within its subsidiaries. Moreover, the repercussions of FTX’s failure extend further still, with Farmington State Bank, a lender with ties to FTX, now subject to enforcement action by the U.S. Federal Reserve.
The deal between FTX and Genesis may have eased the pressure on these two firms, but the shockwaves of FTX’s collapse continue reverberating throughout the cryptocurrency industry. As the bankruptcy proceedings of both companies continue, the industry will be watching closely to see how the remaining lawsuits and legal challenges unfold.