The FTX Recovery Trust has sued crypto mining company Genesis Digital Assets for $1.15 billion in effort to claw back one of the “most reckless” investments made by former FTX CEO Sam Bankman-Fried.
The former crypto billionaire began investing in Kazakhstan-based GDA, which is unrelated to cryptocurrency firm Genesis Global Capital, in 2021 through FTX’s subsidiary Alameda Research. Bankman-Fried invested $1.15 billion in GDA between October 2021 and April 2022 based on “flagrant misrepresentations and overlooked red flags,” according to the lawsuit.
Kazakhstan saw an influx of cryptocurrency miners in 2021, straining the country’s electrical grid. Bankman-Fried did not take into account the country’s power-related problems and relied on GDA’s “unaudited financials [which] bore no relation to reality” in his investment decisions, the lawsuit said.
Bankman-Fried’s initial investment in GDA was $100 million. Later that year, after the government of Kazakhstan capped the energy crypto miners could use to stave off a worsening energy crisis, GDA sought to raise more funds to move its operations to the U.S. Relying on what one GDA board member allegedly described as an “insane and off-market” valuation, Bankman-Fried negotiated a significantly higher investment with GDA co-founders Rashit Makhat and Marco Krohn.
“If the spiking cost of energy, crippling regulations, and lack of interest from other investors were not enough, the diligence process again raised a number of red flags, all of which Bankman-Fried did not take into account when he purchased GDA shares at an even more excessive overvaluation,” according to court documents. “Worse still, over half of the funds invested went directly to Makhat and Krohn personally, allowing them to cash out of the failing company and conveying no benefit to GDA itself.”
Bankman-Fried made these decisions “with looted funds burning a hole in Alameda’s pocket,” according to the lawsuit. His investment in GDA was one of many that led to FTX’s liquidity crisis and bankruptcy, and ultimately, to his own fraud convictions.
FTX Recovery Trust has been clawing back investments made by FTX to refund creditors. After being locked out of their funds for more than two years, creditors received roughly $6 billion between February and May of this year. Another $1.6 billion is scheduled for disbursement this month.
A spokesperson for GDA, which in recent years has moved from Kazakhstan to Dubai, declined to comment.
