Genesis lawyers to fight $3.9B FTX clawback

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FTX lawyers want money FTX Debtors paid to Genesis 90 days before the FTX bankruptcy returned.

Genesis can absolve itself from paying FTX through an “ordinary course of business defense,” Lumida Wealth Management  CEO Ram Aluwaia said in a recent interview.

Lawyers Must Prove Deviation From Ordinary Business With FTX

Bankruptcy lawyers can argue FTX paid Genesis through ordinary B2B practices to mitigate the terms of the clawback request. FTX’s trustee John J. Ray III, is unlikely to oppose this defense, according to the law firm Bernstein-Burkley.

Practically, Genesis, the creditor, must disprove allegations that FTX repayments deviated from normal debt collection practices. 

According to Bernstein, courts have been inconsistent in interpreting “ordinary” transactions and may need to examine the business practices of firms similar to Genesis to assess potential deviations.

As a result, the creditor may enlist an expert witness familiar with debt collection practices between crypto firms. If FTX wins the case, Genesis could still receive funds as a creditor in a somewhat lengthy process.

Courts will hear the FTX’s clawback case on May 25.

DCG May Negotiate Out of Court Agreement

Genesis must also consider the imminent default of its parent company, the Digital Currency Group.

In January, DCG CEO Barry Silbert said the firm owed it’s subsidiary $447.5 million in U.S. dollars and 4,550 Bitcoins worth about $127 million at press time.

According to Gemini Exchange, the firm needs to either restructure its debt or repay the funds by May 9 to avoid a default. DCG also owes Genesis $1.1 billion in a promissory note maturing in 2032.

Gemini and DCG have agreed to mediation to compensate Gemini’s Earn program customers. Genesis earned interest for Earn customers, with Gemini acting as an agent. Genesis reportedly owes Gemini about $766 million.

Ahluwalia says DCG could negotiate an out-of-court agreement if it doesn’t fulfill its obligations by May 9. The process could further delay repayment to Genesis’ top creditors, who are owed about $3.4 billion.

As one of crypto’s shadow banks, Genesis loaned $130.6 billion during the 2021 bull market. In addition to FTX, the lender also extended funds to Alameda Research, the quant trading firm at the heart of Sam Bankman-Fried’s fallen crypto empire.

Genesis Asia Pacific also wrote off money Three Arrows Capital owed it last year.

Relationships Between Genesis, DCG, Gemini, 3AC, and FTC | Source: Bloomberg

Crypto brokerage Voyager Digital borrowed money from Alameda, which borrowed billions from FTX, collateralized by illiquid FTT tokens.

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