The FTX Bankruptcy Trust has initiated a substantial lawsuit against Genesis Digital Assets, seeking $1.15 billion in a significant clawback effort amid the fallout from the FTX crypto exchange’s collapse. This legal action is one of the largest of its kind in the ongoing endeavors to recover assets lost during the exchange’s dramatic downturn.
The lawsuit contends that Genesis Digital and its founders received over $1 billion in fraudulent transfers from Sam Bankman-Fried’s Alameda Research between 2021 and 2022. According to the trust, these investments were made at “outrageously inflated prices,” resulting in minimal to no value for FTX’s business, which was already experiencing insolvency at the time.
In its filing, the trust outlines that from August 2021 to April 2022, Bankman-Fried directed Alameda to purchase multiple shares in Genesis Digital, with only Alameda—and by extension, Bankman-Fried, who owns 90% of the firm—benefiting from these transactions. This, the filing argues, was to the “great detriment” of FTX’s customers and other creditors.
Under U.S. bankruptcy law, the trust has the authority to pursue “avoidance actions,” which are legal steps aimed at reclaiming improperly transferred funds prior to the company’s bankruptcy declaration. This latest lawsuit is indicative of the extensive asset recovery campaign undertaken by FTX, which has become one of the most intricate and large-scale cases in U.S. bankruptcy history.
The trust alleges that the majority of the funds involved originated from customer deposits on FTX.com, which were subsequently funneled to Alameda Research and ultimately redirected towards Genesis Digital. The lawsuit highlights that the co-founders of Genesis, Rashit Makhat and Marco Krohn, profited personally by selling over $550 million in their shares to Alameda during this period.
In addition to the financial complexities, the complaint describes Genesis Digital as a politically connected Bitcoin mining firm in Kazakhstan, leveraging both low energy costs and favorable regulations under the regime of former president Nursultan Nazarbayev. However, as of late 2021, the nation’s power grid faced challenges from a growing number of mining operations, leading to new taxes, power outages, and social unrest that destabilized the industry.
Despite these risks—including questionable financial statements and concerns about money laundering—Bankman-Fried allegedly continued to push forward with substantial investments, which the trust denounces as reckless and characterized by misappropriation of funds.
This lawsuit emerges as Bankman-Fried is currently serving a 25-year prison sentence following his conviction on various criminal charges, including fraud and conspiracy, related to the collapse of FTX. The case not only emphasizes the ongoing legal battles stemming from the FTX debacle but also raises questions about the practices within the cryptocurrency industry during a period of rapid growth and volatility.
