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FTX Seeks Court Approval to Liquidate $175M Claim Against Genesis Global Capital

The latest FTX court motion in detail

FTX has approached a Delaware court with a proposal poised to reshape its financial recovery efforts. On February 1st, the bankrupt exchange filed a motion seeking permission to sell its $175 million claim against the also bankrupt Genesis Global Capital. This claim, originating from FTX's affiliated hedge fund Alameda Research, marks a critical pivot as FTX navigates through its bankruptcy proceedings.

The essence of FTX's strategy lies in maximizing the value recovered from its claim, opting to sell the claim wholly or in parts, "at different times," to seize upon the most favorable market conditions. With claims against Genesis fetching around 65% of their nominal value—a stark contrast to the 38% rate for Alameda Research's claims—FTX's motion highlights a calculated attempt to bolster its liquid assets. 

The motion delineates a sales procedure designed to streamline the process, stipulating that any sale must command "at least 95% of the highest price quoted by one or more leading market-makers for general unsecured claims of GGC on a reference date" within a three-day window preceding the sale. 

Reflecting on the motion's rationale, FTX asserted, 

"Entry of this Order is in the best interests of the Debtors and their estates, creditors, interest holders and all other parties-in-interest."

The development of the FTX vs. Genesis case

The negotiation down to a $175 million claim from a larger debt embodies a pragmatic approach by FTX and Genesis, aiming to sidestep the "delay and uncertainty of litigation." This settlement, approved by the court in October after initial claims sought to recoup $3.9 billion, represents a strategic compromise to mitigate the unpredictable nature of legal recoveries. 

"The potential for recoveries was unpredictable and the settlement avoided long and costly litigation," 

FTX and Genesis concurred, emphasizing the settlement's efficiency over protracted court battles.

The backdrop to this legal maneuvering is a tumultuous one. FTX's November 2022 collapse, precipitated by revelations of financial irregularities, marked a dramatic turn in the crypto industry's fortunes. Genesis, with $175 million ensnared in FTX at the time of its downfall, insisted this did not impede its market-making endeavors. 

However, the subsequent bankruptcy of Genesis in January 2023, a subsidiary of the Digital Currency Group, and its entanglements with the Gemini cryptocurrency exchange, highlight the cascading effects of FTX's failure.

A vital court hearing scheduled for February 14th in New York will further explore Genesis debtors’ proposed bankruptcy reorganization plan, incorporating a $21 million settlement with the SEC regarding the Gemini Earn program.