On Thursday, FTX and Genesis announced a settlement agreement worth $175 million, effectively resolving a $4 billion claim. The deal, which awaits final documentation, aims to facilitate the confirmation of Genesis’ bankruptcy plan and bring stability to the ongoing Chapter 11 proceedings.
In response to Genesis’ earlier communication on July 27, FTX’s legal team issued a letter stating that the parties had reached an agreement in principle.
The proposed settlement would not only address the claims asserted by FTX against the Debtors in the Chapter 11 Cases but also settle the claims asserted by the Genesis Debtors against the FTX Debtors in the Chapter 11 Cases.
The settlement, subject to court approval, would render moot the pending motions to modify the automatic stay and to establish procedures for estimating the amount of the FTX Debtors’ claims. The parties intend to promptly document the settlement and file a motion for approval.
FTX 2.0 Coalition Expresses Discontent Over Reduced Settlement
While the settlement represents a significant step towards resolving the claims, concerns have been raised by the FTX 2.0 coalition.
They highlight the reduction of the initial $3.9 billion claim to $2 billion and express discontent, especially in light of the ongoing Department of Justice investigation involving Digital Currency Group (DCG) and Genesis.
According to the Debtors, Genesis’ claims currently “outweigh” those of FTX, in part due to “inflated” lender balances resulting from interest earned on lending activities, including to Alameda.
In addition, Genesis was allegedly previously reimbursed with billions of FTX customer funds in 2022, with coins held by Genesis potentially traceable to FTX customer deposits, the Coalition alleged:
FTX asks court to settle Genesis dispute for a $175 million Genesis claim, the release of a $175 million customer claim and (near worthless) Alameda claims. Down from the first $3.9 billion to $2 billion asserted, this must be the worst deal to date, especially in light of the new DCG <> Genesis DOJ investigation.
Given these developments, the UCC (Official Committee of Unsecured Creditors) is expected to object to the settlement.
However, Genesis Capital has issued a letter to the court, asserting that the settlement agreement is the outcome of extensive negotiations and has been approved by the Special Committee of the Board of Directors of Genesis Global.
They believe that the settlement is in the best interests of the Genesis Debtors’ estates and their creditors, stating that the settlement will serve as a significant step forward by eliminating the need for protracted litigation and its associated costs.
On the other hand, FTX CEO John J. Ray III agreed with the fairness of the deal. He stated that the settlement is in the best interest of the firm, considering the legal concerns surrounding the claims made by both parties.
The final approval of the settlement will determine the resolution of the long-standing dispute between FTX and Genesis, providing clarity and direction for the ongoing bankruptcy proceedings.
Featured image from iStock, chart from TradingView.com