FTX Trust Alleges Bankman-Fried Funneled Customer Funds into Inflated Genesis Shares

The FTX Recovery Trust has initiated a $1.15 billion lawsuit against Bitcoin mining firm Genesis Digital Assets, alleging fraudulent transfers of customer funds from the now-defunct FTX exchange. The suit, filed in the U.S. Bankruptcy Court for the District of Delaware, accuses former FTX CEO Sam Bankman-Fried of using commingled customer assets from his hedge fund, Alameda Research, to purchase Genesis shares at “outrageously inflated prices” between August 2021 and April 2022. The trust claims these transactions enriched Bankman-Fried and Alameda while diverting funds from FTX customers and creditors title1^[1].

Court documents reveal that Bankman-Fried, as Alameda’s 90% owner, orchestrated four investment rounds totaling $1.15 billion in Genesis Digital. Co-founders Rashit Makhat and Marco Krohn received $470 million and $80.9 million, respectively, for their shares in February 2022. The trust argues that these transfers occurred as FTX approached insolvency, with Alameda receiving minimal value for its investments while FTX creditors bore the losses. Bankman-Fried resigned from Genesis’ board days before FTX’s November 2022 bankruptcy filing title2^[2].

The lawsuit highlights systemic risks in Genesis’ operations, including its reliance on Kazakhstan’s volatile energy grid and political connections under Nursultan Nazarbayev. By late 2021, Kazakhstan’s grid faced strain from an influx of miners, new taxes, and energy rationing. Despite these red flags—unaudited financials, money laundering concerns, and a lack of external investor interest—Bankman-Fried proceeded with the investments. Genesis’ valuation surged from $3.25 billion in July 2021 to $8.3–$12.2 billion by November 2021, described by a board member as “insane and off-market” title5^[3].

The FTX Trust’s legal strategy targets Genesis’ U.S. subsidiaries, alleging they operate as “alter egos” of the parent company under Delaware law. This could expose the entire corporate structure to clawback claims. The trust has already distributed $6.2 billion to creditors through three rounds, with a $1.6 billion payout scheduled for September 30. These efforts follow a $175 million settlement earlier this year with Genesis Global Trading, a separate entity title6^[4].

Bankman-Fried, currently serving a 25-year prison sentence, remains central to the litigation. His appeal is set for November 2025. The Genesis case adds complexity to the broader FTX bankruptcy estate’s recovery efforts, which involve multiple jurisdictions and entities tied to the exchange’s collapse. The trust’s legal team includes Sullivan & Cromwell LLP and Quinn Emanuel Urquhart & Sullivan LLP title10^[5].