FTX Seeks $176 Million Settlement with Genesis Entities Amid Legal Dispute

According to a legal filing on August 16, FTX, the bankrupted cryptocurrency exchange, and its CEO, John J. Ray III, have submitted a motion to settle with Genesis entities for $176 million.

With motion hearing scheduled for September 9, FTX Trading and related debtors have formally requested court intervention to settle a $176 million dispute with Genesis, who is seeking to address customer claims amounting to the same sum against FTX Trading and its affiliates.

The Settlement Agreement provides significant economic advantages to FTX trading and its Debtors as it avoids the complexities and delays of multi-jurisdictional litigation, extensive discovery, and uncertainties of adjudicating preference claims in the New York Bankruptcy Court.

In CEO John J. Ray III declaration filled in court, discussions were initiated between FTX Trading and Debtors and the Genesis Entities to settle their disputes and claims, including ongoing litigation regarding “the Lift Stay Motion and the Estimation Motion since June 30, 2023.

These efforts led to the Settlement Agreement, which resolves all disputes between the parties by allowing FTX and its general unsecured claim worth $176 million in the Genesis Debtors’ chapter 11 cases.

Moreover, the Genesis Entities are giving up all claims against the FTX Entities. This encompasses liquidated claims totaling over $215 million, preference claims of around $140 million, unliquidated claims, and potential replacement claims under section 502(h) of the Bankruptcy Code, should the Debtors succeed in their preference claims against the Genesis Entities. 

FTX Creditors Express Concerns Over Alameda’s Fund Transfer and Challenge Agreement

FTX creditors are dissatisfied, prompting FTX’s Unsecured Creditors Committee (UCC) to contest the agreement. They are concerned about Alameda’s sizable transfer of FTX customer funds to Genesis in 2022.

On August 17, the FTX 2.0 Coalition conveyed its concerns on the social media platform X (formerly known as Twitter), stating that the recent offering by FTX is deeply problematic. 

This situation is especially concerning given the current investigation by the Department of Justice (DOJ) into DCG and Genesis. 

“Genesis claims are currently worth more than FTX’s even as Genesis lender balances are inflated by the interest they earned from lending, among others, to Alameda.”

Also, in response to FTX’s CEO filing, the UCC submitted a filing on Thursday, August 17. According to the filing, UCC did not oppose the settlement plan, as they deemed it beneficial for FTX Debtors’ creditors. 

However, the UCC clarified in its filing that despite the FTX Debtors claiming around $3.8 billion against the Genesis Debtors due to preference exposure, their analysis and investigation indicated that the actual recoverable amount from the Genesis Debtors could be significantly lower.

The UCC’s analysis pointed out that a substantial portion of the withdrawals from the FTX.com exchange during the preference period seemed to be collateral returns from the Genesis Entities to Alameda.

This type of transaction wouldn’t qualify as a preference payment under legal terms, further reducing the FTX Debtors’ claims against the Genesis Entities.

Moreover, a significant portion of the Genesis Entities and Alameda transactions was conducted using FTT as currency. This introduced complexities in determining the accurate valuation of FTT at different dates relevant to the FTX Debtors’ claims.

The UCC’s filing acknowledged the settlement plan’s value for FTX Debtors’ creditors. Still, it highlighted that their claims against the Genesis Debtors were likely overestimated due to various mitigating factors.