FTX Trust Sues Genesis: Unraveling a $1.15B Crypto Mirage

FTX Recovery Trust has initiated a $1.15 billion lawsuit against Genesis Digital Assets, alleging fraudulent transfers of customer funds from the now-defunct FTX exchange. Filed in the U.S. Bankruptcy Court for the District of Delaware, the complaint claims that former FTX CEO Sam Bankman-Fried orchestrated Alameda Research, his hedge fund, to purchase Genesis shares at inflated prices between August 2021 and April 2022. These transactions, totaling $1.15 billion across four funding rounds, allegedly benefited only Alameda and Bankman-Fried, while FTX customers and creditors suffered losses. The lawsuit seeks to recover the funds under federal bankruptcy law and Delaware’s Uniform Fraudulent Transfer Act, arguing that the transfers lacked equivalent value and were made while FTX was insolvent FTX Trust Sues Genesis Digital for $1.15B Clawback Over Alleged ...^[1].

Court documents reveal that Genesis co-founders Rashit Makhat and Marco Krohn received $470 million and $80.9 million, respectively, for their shares in February 2022. The FTX Trust contends that these payouts allowed the founders to "cash out of a failing company," while Alameda’s investments were made amid red flags, including Kazakhstan’s energy crisis, unaudited financials, and money laundering concerns. Internal communications cited in the filing describe the valuations as "insane and off-market," with Genesis’s valuation surging from $3.25 billion in July 2021 to $8.3 billion–$12.2 billion by November 2021 FTX Trust Files $1.15 Billion Lawsuit Against Bitcoin Miner …^[3].

The legal action is part of the FTX Trust’s broader efforts to recover assets for creditors. Since the exchange’s 2022 collapse, the trust has distributed $6.2 billion across three rounds, with $1.2 billion, $5 billion, and a planned $1.6 billion disbursement by September 30. These efforts aim to recover half of the $16.5 billion allocated for victims. The Genesis lawsuit, one of the largest clawback actions in the FTX case, highlights the scale of Bankman-Fried’s alleged misuse of FTX funds. He resigned from Genesis’s board days before FTX’s bankruptcy filing in November 2022 FTX Trust Sues Genesis Digital for $1.15B Clawback Over Alleged ...^[1].

Genesis, a Bitcoin mining firm with 500 megawatts of capacity across 20 global data centers, had planned an IPO as of July 2024. However, the FTX lawsuit complicates its corporate structure, with the trust alleging that U.S. subsidiaries like Dog House TX-1 and White Deer LLC operate as "alter egos," exposing the entire entity to liability. The mining sector faces renewed scrutiny as the case underscores risks of misappropriated capital in crypto-linked ventures FTX Trust Sues Genesis Digital for $1.15B Clawback Over Alleged ...^[1].

Bankman-Fried, serving a 25-year prison sentence for fraud and conspiracy, is appealing his conviction, with oral arguments scheduled for November 4, 2025. The FTX Trust’s litigation also includes a $175 million settlement with Genesis Global, a subsidiary of Digital Currency Group, as creditors pursue recovery across multiple jurisdictions. This case adds to a web of lawsuits targeting entities and individuals tied to FTX’s collapse, reflecting the complexity of tracing and reclaiming misused funds in a decentralized and opaque industry FTX Trust Files $1.15 Billion Lawsuit Against Bitcoin Miner …^[3].

The lawsuit underscores the regulatory and legal challenges in crypto asset recovery. By leveraging bankruptcy laws to target pre-bankruptcy transactions, the FTX Trust aims to set precedents for holding executives and affiliated firms accountable for fraudulent transfers. The outcome could influence future clawback efforts in crypto bankruptcies, where tracing commingled funds and opaque valuations remain significant hurdles.