FTX Seeks Court Approval to Sell $175M Genesis Claim Amid Bankruptcy Proceedings

Jessie A Ellis  Feb 04, 2024 19:58  UTC 11:58

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FTX has initiated a significant legal maneuver by filing a motion in a Delaware court to sell its $175 million claim against Genesis Global Capital. This action comes in the wake of Genesis Global Capital declaring bankruptcy, with FTX and its associated hedge fund, Alameda Research, directly impacted. The claim, originally lodged by Alameda Research, forms a part of FTX's broader strategy to navigate its post-collapse financial recovery. FTX's move to sell the claim, either in full or in parts and potentially across different occasions, aims to optimize market conditions to maximize returns from the sale.

The claims against Genesis are currently trading at 65% of their face value, a figure notably higher than the 38% value attributed to Alameda Research claims. FTX's motion outlines a proposed sales procedure designed to streamline the process, ensuring that the sale price is no less than 95% of the highest quoted price by leading market-makers for Genesis Global Capital's general unsecured claims within a specified timeframe around the sale date. This strategic decision underscores FTX's intent to alleviate the financial complexities and delays typically associated with the sale of such claims, highlighting the motion's rationale as being in the best interest of all parties involved, including debtors, creditors, and other stakeholders.

The backdrop to this motion is FTX's initial effort to recoup $3.9 billion from Genesis under bankruptcy law provisions, a sum that was later negotiated down to $175 million in a settlement reached between the two entities in August 2023 and approved by the court in October of the same year. This settlement effectively extinguished other claims FTX had against Genesis, with both parties citing the unpredictable nature of potential recoveries and the desire to avoid lengthy and costly litigation as key reasons for the reduced claim amount.

This development is part of a larger narrative involving FTX's collapse in November 2022 due to accounting irregularities, which sent shockwaves through the cryptocurrency market. Genesis Global Capital, with $175 million tied up in FTX accounts at the time, insisted that this did not affect its market-making activities. However, Genesis's own bankruptcy filing in January 2023 and subsequent legal entanglements, notably with the Gemini cryptocurrency exchange over the Gemini Earn program, further complicate the situation. Genesis's recent $21 million settlement with the SEC over issues related to Gemini Earn is a critical element in its ongoing bankruptcy reorganization efforts.

A court hearing scheduled for February 14 in New York will be a pivotal moment, as it will consider the inclusion of the SEC settlement in Genesis's proposed bankruptcy reorganization plan. This hearing represents a significant step in the unfolding legal drama surrounding Genesis Global Capital's bankruptcy and its broader implications for the cryptocurrency industry​​​​.

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