Cheap FTX crypto tokens were offered to Genesis executives

Executives at a major lender to Sam Bankman-Fried’s defunct hedge fund had privileged early access to issues 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 client funds from FTX.

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

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

Genesis’ lending unit failed earlier this year after suffering losses due to the failure of Bankman-Fried’s crypto empire 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 Bankman-Fried gave some executives at the lender the opportunity to invest in “pre-sale” tokens of FTT, the FTX native token that launched in 2019, and Serum, which launched in 2020 with the backing of FTX and Alameda.

The advance access to FTT and Serum, also offered to others outside Genesis within Bankman-Fried’s network of industry contacts, gave Genesis executives an opportunity to make money after retail investors bought in.

It is unclear how widespread access was in Genesis. A former executive told the FT that they were not aware 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 tokens for a period that could range from a few months to years.

At the launch of FTT, FTX offered some Genesis executives pre-sale access through a “very standard” one-page offer, another former Genesis executive said.

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

Additional opportunities followed, including Serum, a project launched on Solana’s blockchain network with support from FTX and Alameda. Solana himself was also championed 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, Serum’s price rose by 1,500 percent.

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 lending and whether there had been a “weird quid pro quo” with Alameda.

Braziel added that the practice was consistent with his understanding of how Bankman-Fried operated. “He really took care of people that he thought were important to him. . . . He did a good job of keeping everyone’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.

Launched in 2013, US-based Genesis is part of the SoftBank-backed Digital Currency Group, one of the oldest investors in crypto companies. Launched in 2018, Genesis’ lending arm became a major source of credit for crypto businesses, with loans worth $131 billion in 2021.

Genesis’ $226 million 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.

The FTT and Serum tokens, along with Solana, were also accepted by Genesis as collateral pledged by Alameda to secure the loans, according to people familiar with the matter.

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 huge pipeline for us,” they said.

Additional reporting by Joshua Oliver