The trust handling the FTX bankruptcy has initiated legal action against Bitcoin mining firm Genesis Digital Assets, seeking to recover $1.15 billion. The FTX lawsuit, one of the largest to date, alleges that Alameda Research, under the direction of Sam Bankman-Fried, made fraudulent transfers to Genesis between 2021 and 2022, using customer funds to finance risky and overvalued investments.
The legal action details how Alameda Research invested over a billion dollars in Genesis Digital Assets. According to the trust, these funds came directly from the exchange’s customer deposits. The claim argues that the investments were made at inflated prices and provided no real value to FTX’s business, which was already insolvent at the time. Genesis co-founders Rashit Makhat and Marco Krohn are also singled out for having personally benefited, selling more than $550 million of their own shares to Alameda.
This FTX lawsuit falls under the “avoidance actions” permitted by U.S. bankruptcy law. This legal mechanism empowers the trust to claw back improper transactions made before the bankruptcy filing. The goal is to recover as much funding as possible to compensate the hundreds of thousands of creditors affected by the exchange’s collapse. The complaint describes Bankman-Fried’s investments in Genesis as reckless and executed with misappropriated funds.
Impact on the Bankruptcy Process
The recovery of these assets is a crucial step in the complex FTX liquidation process. If the trust succeeds, the $1.15 billion would be added to the capital available for distribution among creditors, who hope to recover a portion of their losses. This type of litigation highlights the deep interconnection between major companies in the crypto sector before the 2022 crisis and how the fall of one dragged down many others. The resolution of this FTX lawsuit could set an important precedent.
The outcome of this legal battle is critical for the future of FTX creditors. While Sam Bankman-Fried serves a 25-year sentence for fraud, the trust continues its aggressive strategy to undo the fraudulent operations of its former management. Asset recovery through these lawsuits is, for now, the main hope for those affected, although the process is expected to be long and fraught with legal challenges before the funds can finally be distributed.
