Cheap FTX Crypto Tokens Offered to Genesis Executives

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Executives of a major lender to defunct hedge fund Sam Bankman-Frieds had privileged, early access to issuances of new tokens backed by disgraced entrepreneurs’ crypto exchange FTX, the Financial Times has learned.

Genesis, a major crypto lender that collapsed in January, has long been a key funding source for Alameda Research, the trading firm at the heart of Bankman-Frieds, which has alleged the theft of customer assets from FTX.

The close relationship included opportunities for some Genesis executives to invest in the cryptocurrencies that Bankman-Fried helped launch, at a discounted rate before the tokens were released to the public, according to people familiar with the matter.

The access highlights the past closeness of the groups, both now bankrupt, and the larger, intertwined nature of the crypto industry, which is dominated by a small number of companies with diverse investments and overlapping interests. .

Genesiss’ lending unit failed earlier this year after suffering losses from the failure of crypto empire Bankman-Frieds and another collapsed crypto hedge fund, Three Arrows Capital. Genesis is FTX and Alameda’s largest creditor and owes $226 million, according to U.S. bankruptcy court records.

Former Genesis employees said that Bankman-Fried gave some executives of the lender the opportunity to invest in pre-sale tokens of FTT, the native FTX token launched in 2019, and Serum, which launched in 2020 with FTX and Alameda support.

Pre-sale access to FTT and Serum, also available to others outside of Genesis within the Bankman-Frieds network of industry contacts, gave Genesis executives the opportunity to capitalize after the buying from retail investors.

It is unclear how widespread access was in Genesis. A former executive told the FT that he was unaware of such offers from FTX.

Crypto token offerings to retail investors over the past few years have generally followed early funding rounds involving venture capital and other investors. In exchange for a discounted price, early investors would often agree not to sell the tokens for a period that could range from a few months to several years.

When FTT launched, FTX offered select Genesis executives pre-sale access through a very standard one-page offer, a second former Genesis executive said.

They decided not to invest in FTT but later regretted their decision when the price of the token surged, the former executive added. It was a big miss, the person said.

Other opportunities followed, including Serum, a project launched on Solana’s blockchain network with backing from FTX and Alameda. Solana himself was also defended by Bankman-Fried.

The only reason we invested in Serum is because we missed FTT, said the former Genesis executive. When launched in August 2020, the price of serums jumped 1,500%.

Thomas Braziel, co-founder of 507 Capital, which has purchased claims in multiple crypto bankruptcies including Genesis and FTX, said the disclosures raise questions about Genesis loans and whether there was any odd quid pro quo with Alameda. .

Braziel added that the practice was consistent with his understanding of how Bankman-Fried works. He really took care of the people he considered important to him… He did a good job of keeping everyone’s bread buttered.

FTX and Alameda, now under new common management in bankruptcy, did not respond to a request for comment. Genesis did not respond to requests for comment. A Bankman-Fried spokesperson declined to comment.

US-based Genesis was launched in 2013 and is part of the SoftBank-backed Digital Currency Group, one of the oldest investors in crypto companies. Genesiss’ lending arm launched in 2018 and has become a major source of credit for crypto businesses, originating $131 billion in loans in 2021.

Genesis’s $226 million exposure to the Bankman-Frieds businesses during their collapse was previously much larger, but in the summer of 2022 Alameda repaid loans to Genesis and other lenders as markets for cryptography were collapsing. US authorities have accused Bankman-Fried of repaying Alameda creditors in 2022 with funds from FTX without telling them the true source of the money.

Bankman-Fried has denied any wrongdoing.

A Genesis entity, GGC International Ltd, is on the official committee of unsecured creditors in the joint bankruptcy process of FTX and Alameda.

FTT and Serum tokens, along with Solana, were also accepted by Genesis as collateral given by Alameda to secure its borrowings, according to people familiar with the relationship.

Alameda was more than just a direct loan application source for Genesis, according to a former Genesis employee who said the hedge fund referred clients to the lender. It was a huge pipeline for us, they said.

Additional reporting by Joshua Oliver

Video: FTX: The Legend of Sam Bankman-Fried | FT Movie

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