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FTX is taking legal action to reclaim nearly $3.9 billion from Genesis Global Capital (GGC) in the ongoing bankruptcy case. FTX filed for adversary proceedings against Genesis on May 3 in an effort to recover the funds and distribute them to other creditors in the FTX Chapter 11 Cases. These creditors collectively comprise several million customers owed over $11 billion at the time of FTX's bankruptcy filing.
Genesis, a subsidiary of Digital Currency Group, allegedly obtained avoidable transfers totaling almost $3.9 billion from FTX's debtors. FTX claims that Genesis was a key contributor to FTX and its affiliate Alameda Research and played a critical role in the exchange's deceptive business practices. The filing also noted that GGC had over $8 billion in outstanding loans to FTX debtor Alameda Research Ltd. in 2021.
According to the filing, Genesis's business model involved collecting cryptocurrency from various lenders, channeling those loans to Alameda and other borrowers, and profiting through a net interest margin. GGC maintained customer accounts on FTX.com and provided billions of dollars in cryptocurrency loans to Alameda.
FTX, its American branch FTX US, Alameda Research, and over 100 affiliated companies filed for bankruptcy in November 2020 following a liquidity crisis resulting from a sell-off of its FTT token. The downfall of the once-renowned crypto derivatives exchange has been challenging for its current CEO, John Ray III, who admitted that the process of recovering funds has been difficult.
After the FTX catastrophe, authorities have intensified their scrutiny of rivaling exchanges such as Binance, Coinbase, Crypto.com, and Bithumb. Regulators around the world have tightened their grip on these platforms, implementing stricter compliance measures and demanding higher transparency standards. The aim is to prevent similar incidents that could undermine the stability and credibility of the cryptocurrency market.
Consequently, these exchanges have been compelled to bolster their internal controls, improve customer asset protection, and ensure adherence to evolving regulatory requirements. The FTX debacle has served as a cautionary tale, prompting the industry to prioritize investor protection and long-term sustainability.
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