In a recent development, FTX, the cryptocurrency exchange that faced a tumultuous downfall in November 2022, has filed a motion in a Delaware court to seek approval to sell its $175 million claim against Genesis Global Capital, a bankrupt digital financial services firm. Alameda Research, a hedge fund associated with the bankrupt cryptocurrency exchange, originally made this claim.
FTX’s motivation for the claim sale
The motion submitted by FTX aims to sell the claim, either in its entirety or in part, and at various times to take advantage of optimal market conditions. Currently, claims against Genesis are traded at 65% of their face value, significantly higher than the 38% that Alameda Research claims are fetching. This move reflects FTX’s strategic decision to maximize its returns amidst changing market dynamics.
The motion also requests approval for a standardized sales procedure that would apply to all sales, thereby reducing the cost and delay associated with filing separate motions for each proposed sale.
According to the proposed sale order, the sale price must amount to at least 95% of the highest price quoted by leading market-makers for general unsecured claims of Genesis Global Capital on a reference date within three days of the sale date.
The motion argues that “Entry of this Order is in the best interests of the Debtors and their estates, creditors, interest holders and all other parties-in-interest.” However, objections to the sale of the claim can be made until February 15th, providing an opportunity for concerned parties to voice their concerns or reservations regarding the proposed sale.
Background and rationale
FTX initially sought to recover $3.9 billion from Genesis in May, leveraging the provisions allowed under bankruptcy law. However, the negotiated settlement for $175 million was reached between FTX and Genesis in August and approved by the court in October. At that time, other claims against Genesis by FTX were expunged.
Both parties justified the reduced claim amount because the potential for recoveries was highly unpredictable, and the settlement would help avoid protracted and costly litigation, the outcome of which would also be uncertain.
FTX’s own collapse in November 2022 resulted from irregularities discovered in its account books, sending shockwaves through the cryptocurrency industry. Notably, Genesis Global Capital had $175 million in its FTX account. However, it was asserted that this did not have an adverse impact on its market-making activities.
Genesis Global Capital’s bankruptcy and ongoing legal battles
Genesis Global Capital, a subsidiary of Digital Currency Group (DCG), filed for bankruptcy in January 2023, triggering a series of legal conflicts, particularly with the Gemini cryptocurrency exchange. Genesis was responsible for managing the Gemini Earn program, which faced disruptions when withdrawals were halted.
On February 1st, Genesis reached a $21 million settlement with the United States Securities and Exchange Commission (SEC) pertaining to issues surrounding the Gemini Earn program. This settlement is poised to play a significant role in Genesis Global Capital’s ongoing bankruptcy reorganization process.
A crucial court hearing is scheduled in New York on February 14th. During this hearing, the Genesis Debtors’ proposed bankruptcy reorganization plan will be examined, along with the potential inclusion of the SEC settlement within this plan. This hearing marks a pivotal juncture in the legal proceedings surrounding Genesis Global Capital’s bankruptcy.
