The cryptocurrency exchange FTX, which is now going through bankruptcy, and its CEO John J. Ray III have filed a request to resolve a $176 million dispute with Genesis companies in a court document dated August 16. The continuing conflict with Genesis, which wants to settle customer claims of an identical amount against FTX Trading and its affiliates, will be resolved at a motion hearing planned for September 9 by FTX Trading and associated creditors.
It is expected that the proposed Settlement Agreement would provide FTX Trading and its Debtors with significant financial advantages by avoiding the difficulties of multi-jurisdictional litigation, lengthy discovery, and the uncertainty associated with deciding preference claims in the New York Bankruptcy Court.
CEO John J. Ray III said in a statement submitted to the court that talks had begun between FTX Trading and Debtors and the Genesis Entities to settle their differences, including the current legal action involving the “Lift Stay Motion” and the “Estimation Motion” since June 30, 2023. The Settlement Agreement, which allows FTX to assert $176 million as a general unsecured claim in the Genesis Debtors’ chapter 11 proceedings, is the result of these conversations and is meant to put an end to any disagreements.
The Settlement Agreement also provides that the Genesis Entities waive any and all claims against the FTX Entities. This includes unliquidated claims, preference claims totaling over $140 million, liquidated claims surpassing $215 million, and prospective replacement claims under section 502(h) of the Bankruptcy Code should the Debtors be successful in their preference claims against the Genesis Entities.
However, FTX’s Unsecured Creditors Committee (UCC) has challenged the arrangement due to concerns raised by FTX’s creditors. Alameda’s massive transfer of FTX customer monies to Genesis in 2022 is a major cause of concern.
The FTX 2.0 Coalition aired its worries about the most recent FTX offering on social media network X (formerly known as Twitter) on August 17. Given the current Department of Justice (DOJ) investigation into DCG and Genesis, this scenario is very important.
The UCC said in its response to FTX’s CEO filing on August 17 that it did not object to the settlement proposal and believed that the FTX Debtors’ creditors would benefit from it. In spite of the FTX Debtors’ claims of around $3.8 billion against the Genesis Debtors resulting from preference exposure, the UCC made it clear that its investigation pointed to a possibly lesser recoverable amount from the Genesis Debtors.
A considerable amount of withdrawals from the FTX.com exchange during the preferential period seemed to represent collateral repayments from the Genesis Entities to Alameda, according to the UCC’s assessment. The FTX Debtors’ rights against the Genesis Entities could be diminished since this kind of transaction wouldn’t be considered a preferential payment.
FTT was used as payment in several transactions between the Genesis Entities and Alameda, which made it difficult to appropriately value FTT on different important dates. While stressing the probable overestimation of their claims against the Genesis Debtors owing to mitigating circumstances, the UCC recognized the significance of the settlement proposal for the creditors of the FTX Debtors.
