The FTX Recovery Trust has launched a significant lawsuit against Bitcoin mining firm Genesis Digital Assets, seeking to claw back an astonishing $1.15 billion. The suit alleges these funds were fraudulently transferred by FTX co-founder Sam Bankman-Fried, stemming from a reckless investment made with commingled and misappropriated assets primarily belonging to FTX customers. This legal action marks a crucial step in the ongoing efforts to recover funds for the myriad creditors affected by the exchange's dramatic 2022 collapse.
Allegations of Fraudulent Investment
Filed in the U.S. Bankruptcy Court for the District of Delaware, the lawsuit targets Genesis Digital, its affiliates, and co-founders Rashit Makhat and Marco Krohn. The trust contends that Bankman-Fried, through his personal hedge fund Alameda Research, funneled customer deposits into Genesis Digital at "outrageously inflated prices" between August 2021 and April 2022. This occurred while the broader FTX business was allegedly insolvent. Alameda is said to have received significantly less than a reasonable equivalent value for its investment, making it a key focus of the recovery efforts.
Genesis Digital's Questionable Context
The complaint paints a picture of Genesis Digital as a company facing mounting challenges, particularly in its Bitcoin mining operations in Kazakhstan, which benefited from political connections and inexpensive energy. Despite a strained electric grid and an influx of miners due to China's crackdown, Bankman-Fried reportedly ignored numerous warning signs prior to the investment. These red flags included Kazakhstan's energy crisis, a lack of interest from other major investors, unaudited financial records, and reports linking Genesis Digital to money laundering and tax evasion. The filing highlights an "insane and off-market" valuation surge, with the company's worth dramatically increasing from $3.25 billion to up to $12.2 billion in just four months. This investment ultimately allowed Genesis Digital founders Makhat and Krohn to sell nearly $551 million of their personal shares directly to Alameda Research, effectively enabling them to "cash out of a failing company" through what the lawsuit characterizes as one of Bankman-Fried’s "most reckless investments."
