Genesis in Settlement of $4 Billion in Claims by FTX

October 6, 2023

Cleary Gottlieb successfully represented Genesis Holdco LLC (Genesis) and its affiliated Chapter 11 debtors in settling almost $4 billion in avoidance claims filed by FTX Trading Ltd., Alameda Research LLC (Alameda), and their affiliates (collectively, FTX).

The settlement grants Alameda an allowed unsecured claim against one of the Genesis debtors in the amount of $175 million and provides for withdrawal and expungement of the remainder of FTX’s almost $4 billion in claims.

On November 11, 2022, FTX, Alameda, and their affiliates ceased operations and commenced Chapter 11 cases in the U.S. Bankruptcy Court for the District of Delaware. Since early 2019, Genesis and Alameda had engaged in extensive collateralized lending and borrowing activity, and certain Genesis entities had used as a repository for cryptocurrency and other digital assets. On January 19, 2023, Genesis and its affiliates commenced Chapter 11 cases in the Bankruptcy Court for the Southern District of New York.

On May 22, 2023, FTX filed claims against Genesis for approximately $4 billion, seeking to claw back over $2 billion in loan repayments and collateral transfers by Alameda and over $1.7 billion in assets allegedly withdrawn by the Genesis entities from the exchange and earlier collateral transfers on the grounds that such payments were “preferential transfers” under the Bankruptcy Code.

In parallel, on May 3, 2023, FTX sought to lift the automatic stay in the Genesis case for the purpose of adjudicating their preference actions in their own Chapter 11 cases in the Delaware bankruptcy court, rather than in the Genesis cases. On June 1, 2023, Genesis sought to estimate the FTX claims at $0 for purposes of their Chapter 11 cases. After several months of litigation, Genesis reached an agreement with FTX to settle their claims for less than 5% of the asserted amounts.

After execution of the settlement, Genesis filed a motion in their Chapter 11 cases, seeking court approval of the settlement. Gemini Trust (co-founded by the Winklevoss twins) and two groups of ad hoc group of creditors objected to the settlement. On September 18, 2023, the SDNY bankruptcy court held a contested evidentiary hearing to consider whether to approve the settlement. On October 6, 2023, the court issued a lengthy decision that approved the settlement and overruled all objections.