The lawsuit alleges former FTX CEO Sam Bankman-Fried directed investments in the crypto mining company, funds the exchange’s trust wants returned.
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The entity responsible for handling cryptocurrency exchange FTX’s bankruptcy filed a lawsuit seeking to recover more than $1 billion in funds spent by its former CEO, Sam “SBF” Bankman-Fried.
In a Monday filing in the US Bankruptcy Court for the District of Delaware, the FTX Recovery Trust a complaint against crypto mining company Genesis Digital Assets (GDA), its affiliates and two of its co-founders as part of its efforts to recover $1.15 billion of “commingled and misappropriated funds.”
According to the filing, the funds were directly tied to Bankman-Fried’s “fraud on customers and other creditors” at FTX in 2021 and 2022.
The complaint alleged that SBF directed Alameda Research, FTX’s sister company under its CEO, Caroline Ellison, to purchase shares of GDA “at outrageously inflated prices” — more than $500 million for 154 preferred shares. He also allegedly purchased $550.9 million in GDA shares by sending the funds directly to two of its co-founders, Rashit Makhat and Marco Krohn.
“By 2021, Bankman-Fried had already caused billions of dollars of customer funds to be diverted from the FTX.com exchange to Alameda,” said the filing. “Despite the ballooning debt Alameda owed FTX.com, Bankman-Fried caused Alameda to pay more than $1.15 billion for wildly overvalued GDA shares.”
The complaint added:
“The Transfers were designed to benefit Bankman-Fried personally: as the 90% owner of Alameda, he stood to capture nearly all of the upside from GDA’s inflated valuation and potential success (both of GDA and Bitcoin generally) while at the same time externalizing the losses to the FTX Group’s creditors and customers.”
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The lawsuit against Genesis Digital followed efforts by the FTX Recovery Trust to connected to the downfall of the exchange. FTX filed for bankruptcy in 2022, and some of its former executives, including Bankman-Fried, are serving time in prison.
According to the complaint, SBF “relied on flagrant misrepresentations and overlooked red flags” when choosing to invest in Genesis Digital. The company was based in Kazakhstan at the time, which was experiencing an energy crisis, and allegedly provided financial documents to Bankman-Fried that “bore no relation to reality.”
In 2023, a bankruptcy court in which Genesis Global Trading — unrelated to GDA — agreed to pay FTX.
After more than two years in bankruptcy court, the FTX Recovery Trust began reimbursing creditors in February. The recovery plan began with a $1.2 billion payout for claimants, followed by a $5 billion distribution in May. It is expected to for creditors on Sept. 30.
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