The FTX Recovery Trust, the entity managing the bankruptcy proceedings of the cryptocurrency exchange FTX, has initiated a legal action aimed at recovering over $1 billion linked to its former CEO, Sam Bankman-Fried (commonly known as SBF). The complaint was filed on Monday in the US Bankruptcy Court for the District of Delaware, targeting Genesis Digital Assets (GDA), along with its affiliates and two co-founders, Rashit Makhat and Marco Krohn.
The filing alleges that the total amount of $1.15 billion comprises “commingled and misappropriated funds,” which were directly associated with Bankman-Fried’s fraudulent activities that affected FTX’s customers and creditors during 2021 and 2022. It cites instances where Bankman-Fried directed Alameda Research, the sister company of FTX, to purchase shares of GDA at “outrageously inflated prices,” specifically noting a transaction exceeding $500 million for 154 preferred shares. Additionally, SBF is accused of transferring $550.9 million in GDA shares directly to Makhat and Krohn.
The complaint outlines that by 2021, Bankman-Fried had already facilitated the diversion of billions of dollars in customer funds from the FTX exchange to Alameda, despite the company being in significant debt to FTX. It asserts that he further perpetuated this misconduct by enabling Alameda to overpay for GDA shares. The filing emphasizes that the transactions were ultimately designed to benefit Bankman-Fried personally, as he held a 90% stake in Alameda. Consequently, he was poised to reap the rewards from GDA’s inflated success while leaving the losses to be shouldered by creditors and customers associated with FTX.
As the legal proceedings unfold, the FTX Recovery Trust remains committed to recovering funds for users affected by the exchange’s collapse. FTX had filed for bankruptcy in 2022, and various former executives, including Bankman-Fried, are currently serving prison sentences. The lawsuit against Genesis Digital Assets is part of a broader effort to reclaim funds relevant to the exchange’s downfall.
The complaint further asserts that Bankman-Fried made investment decisions regarding Genesis Digital based on “flagrant misrepresentations and overlooked red flags.” At that time, GDA was situated in Kazakhstan, which was grappling with an energy crisis, and allegedly provided Bankman-Fried with financial documentation that did not reflect actual conditions.
In 2023, a bankruptcy court approved a separate $175 million settlement involving Genesis Global Trading, a different entity not affiliated with GDA, which agreed to compensate FTX. Following more than two years in bankruptcy court, the FTX Recovery Trust commenced reimbursing creditors in February, initiating with a payout of $1.2 billion for claimants and subsequently distributing $5 billion in May. A further release of $1.6 billion for creditors is anticipated on September 30, as stakeholders and customers seek redress from the fallout of FTX’s catastrophic collapse.
