FTX Recovery Trust Sues Genesis Digital Assets

TLDR

Table of Contents

FTX Trust files lawsuit seeking to recover $1.15 billion from Genesis.
Sam Bankman-Fried directed Alameda to overpay for GDA shares.
GDA shares bought at inflated prices amid FTX’s financial struggles.
The lawsuit aims to return misappropriated funds to FTX creditors.

The FTX Recovery Trust has filed a lawsuit seeking to recover more than $1 billion in funds that were allegedly misappropriated by the exchange’s former CEO, Sam Bankman-Fried. In a recent legal filing in the U.S. Bankruptcy Court for the District of Delaware, the trust accused Genesis Digital Assets (GDA), its affiliates, and two of its co-founders of involvement in a scheme to divert customer funds. The case aims to recover $1.15 billion connected to the fraudulent activities that led to FTX’s collapse.

Allegations of Misappropriated Funds

The filing claims that the funds in question were directly tied to Bankman-Fried’s fraudulent actions at FTX. According to the lawsuit, Bankman-Fried directed Alameda Research, the sister company of FTX, to purchase GDA shares at inflated prices. Specifically, Alameda allegedly spent over $500 million to acquire 154 preferred shares of GDA, a crypto mining company. Furthermore, the lawsuit claims that an additional $550.9 million was sent directly to GDA’s co-founders, Rashit Makhat and Marco Krohn.

The complaint asserts that Bankman-Fried’s actions were part of a broader effort to misappropriate FTX customer funds, diverting billions of dollars from the exchange to Alameda. Despite Alameda’s ballooning debt to FTX, Bankman-Fried allegedly facilitated the overpayment for GDA shares. Notably, he was the majority owner of Alameda, which meant that any potential gains from GDA’s success would benefit him personally.

Overinflated GDA Valuation

The legal action outlines the purchase of GDA shares as a highly inflated transaction. According to the filing, Bankman-Fried and Alameda Research paid an excessive amount for the shares, overvaluing GDA’s business. The $1.15 billion transaction for the GDA shares was seen as an attempt to benefit Bankman-Fried personally while offloading the financial risk onto FTX creditors. The court documents emphasize that these actions were not only designed to benefit Bankman-Fried but also to shield him from the financial losses that would otherwise fall to FTX’s customers and creditors.

This lawsuit represents a significant step in the ongoing effort to recover funds lost in the wake of FTX’s bankruptcy. As the legal proceedings continue, further details of the financial transactions and the role of GDA’s co-founders are expected to emerge.

Impact on FTX Creditors

The lawsuit highlights the ongoing challenges faced by FTX creditors in the aftermath of the exchange’s collapse. While Bankman-Fried’s alleged misappropriation of funds has been central to the case, the involvement of GDA and its co-founders raises further questions about the flow of funds within the crypto industry during the period leading up to FTX’s downfall.

The FTX Recovery Trust is pushing to ensure that the funds are returned to the rightful creditors who were affected by Bankman-Fried’s alleged fraudulent actions.

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