Executives at a major lender to Sam Bankman-Fried’s defunct hedge fund had privileged early access to issuances of new tokens backed by the disgraced entrepreneur’s crypto exchange FTX, the Financial Times has learned.
Genesis, a leading crypto lender that collapsed in January, was long a key source of funding for Alameda Research, the trading firm at the heart of Bankman-Fried’s alleged theft of customer assets from FTX.
The close relationship included opportunities for some Genesis executives to invest in cryptocurrencies Bankman-Fried helped launch, at a discounted rate before the tokens were issued to the public, according to people familiar with the matter.
The access highlights the past closeness of the groups, both now in bankruptcy, and the broader intertwined nature of the crypto industry, which is dominated by a small number of companies with various overlapping investments and interests.
Genesis’s lending unit failed earlier this year after suffering losses from the failure of Bankman-Fried’s crypto empire and another collapsed crypto hedge fund, Three Arrows Capital. Genesis is FTX and Alameda’s biggest creditor and is owed $226mn, according to US bankruptcy court records.
Former Genesis employees said Bankman-Fried gave some executives at the lender the opportunity to invest in “presale” tokens of FTT, the FTX native token that launched in 2019, and Serum, which launched in 2020 with backing from FTX and Alameda.
The presale access to FTT and Serum, also offered to others outside Genesis within Bankman-Fried’s network of industry contacts, gave the Genesis executives an opportunity to profit after retail investors bought in.
It is unclear how widespread the access was within Genesis. One former executive told the FT they were unaware of any such offers from FTX.
Crypto token offerings to retail investors in recent years typically followed early funding rounds involving venture capital and other investors. In return for a discounted price, the early investors often agreed not to sell the tokens for a period that could range from a few months to years.
On launching FTT, FTX offered some Genesis executives presale access through a “very standard” one-page offering, a second former Genesis executive said.
They decided not to invest in FTT, but later rued their decision when the price of the token surged, the former executive added. “That was a big miss,” the person said.
Further opportunities followed, including Serum, a project launched on the Solana blockchain network with backing from FTX and Alameda. Solana itself was also championed by Bankman-Fried.
“The only reason we invested in Serum is we missed FTT,” the former Genesis executive said. At launch in August 2020, Serum’s price spiked 1,500 per cent.
Thomas Braziel, co-founder of 507 Capital, which has bought claims in several crypto bankruptcies including Genesis and FTX, said the revelations raised questions about Genesis’s lending and whether there had been a “weird quid pro quo” with Alameda.
Braziel added the practice was consistent with his understanding of how Bankman-Fried operated. “He really took care of people who he thought were important to him . . . He was doing a good job of keeping everybody’s bread buttered.”
FTX and Alameda, now under new joint management in bankruptcy, did not respond to a request for comment. Genesis did not respond to requests for comment. A spokesperson for Bankman-Fried declined to comment.
US-based Genesis launched in 2013 and is part of SoftBank-backed Digital Currency Group, one of the oldest investors in crypto companies. Genesis’s lending arm launched in 2018 and became a major source of credit for crypto ventures, originating $131bn worth of loans in 2021.
Genesis’s $226mn exposure to Bankman-Fried’s ventures when they collapsed had previously been much larger, but in the summer of 2022 Alameda repaid loans to Genesis and other lenders as crypto markets faltered. US authorities have accused Bankman-Fried of repaying Alameda’s 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 FTX and Alameda joint-bankruptcy process.
The FTT and Serum tokens, along with Solana, were also accepted by Genesis as collateral pledged by Alameda to secure its borrowings, according to people familiar with the relationship.
Alameda was more than just a source of direct loan demand for Genesis, according to a former Genesis employee who said the hedge fund referred clients to the lender. “It was a tremendous pipeline for us,” they said.
Additional reporting by Joshua Oliver