Defunct Crypto Firms FTX and Genesis Reach Preliminary Agreement to Resolve Bankruptcy Case

Jimmy Aki
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Liquidated exchange FTX and crypto lender Genesis have reached an in-principle agreement to settle an ongoing Chapter 11 bankruptcy case worth over $3.9 billion in debt.

Settled Case May Speed Up Payout for Genesis Creditors

On June 27th, the United States Bankruptcy Court for the Southern District of New York was informed of a principle agreement between bankrupt crypto companies FTX and Genesis to settle debts and end court proceedings.

Screen capture of FTX and Genesis in-principle agreement addressed to Judge Sean H. Lane.
Screen capture of FTX and Genesis in-principle agreement addressed to Judge Sean H. Lane.

The conclusive agreement did not contain a deep structure based on the settlement. However, experts believe that the defunct companies have taken the right step to submerge legal proceedings, which have been ongoing for months to mutual agreement.

This will enable the firms to pay off creditors, pending the approval of Judge Sean H. Lane in the coming days.

Initial bankruptcy disputes started when FTX Exchange filed for Chapter 11 Bankruptcy on November 11th, 2022. This unraveled faux, misappropriated, and fraud-driven transactions in the decentralized finance (DeFi) sector.

Following the collapse of FTX, crypto lender Genesis Holding also filed for Chapter 11 bankruptcy on January 11th, 2023.

The company revealed that it suffered losses from its exposure with FTX through investments and connection to failed crypto hedge fund Three Arrows Capital.

According to its Chapter 11 case, Genesis cited FTX as one of its unsecured creditors, owning up to $226 million.

However, there was a turn of events in May 2023 when FTX accused Genesis of a $3.9 billion debt during an ongoing asset and funds investigation and retrieval segment.

The amount is an aggregation of $1.8 billion in loans, $1.6 million withdrawal before the collapse of the FTX trading platform, $273 million in collateral, and $213 million reportedly taken by the crypto lender’s subsidiary.

The contention was rejected by Genesis and was reduced to $2 billion.

The letter submitted by both collapsed firms’ legal representatives to the United States Bankruptcy Court for the Southern District of New York indicated total settlement by mutual agreement.

However, observers of the case believed the in-principle agreement, pending court approval, would be a relief for both FTX and Genesis creditors. This is as they expected the disagreement to delay proceedings and eventual payouts of funds claims.

Striking the Balance: Regulating the Crypto Industry to Prevent Bankruptcy

The crypto industry’s growth has ushered in a new era of financial innovation, promising decentralized and secure transactions.

However, this emerging industry came with inherent risks that can lead to market volatility and, in some cases, the bankruptcy of crypto companies.

Apart from the significant crash of the FTX and Genesis, other popular crypto-based platforms and financial institutions like Silicon Valley Bank and Silver Gate have collapsed.

Bittrex Exchange became the next in line for liquidation as the exchange filed for Chapter 11 bankruptcy protection on May 8th, 2023. The exchange stated that it had over 100,000 creditors yet to be settled.

According to the liquidation court document, Bittrex had an estimated debt of $500 million to $1 billion.

In all of these, regulating the crypto industry is vital to prevent bankruptcy while nurturing the immense innovation of the DeFi industry.

Regulatory bodies like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) must enforce transparency and responsible practices.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.