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FTX fallout hits crypto lender Genesis; Bankman-Fried, celebs sued

Nov 16 (Reuters) – Crypto lender Genesis Global Capital suspended customer redemptions on Wednesday, citing the sudden failure of crypto exchange FTX, while court documents showed FTX founder Sam Bankman-Fried faces legal action stare.

FTX filed for bankruptcy protection in the United States on Friday in the highest-profile crypto blowout to date, after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. After a flurry of tweets and interviews by Bankman-Fried, FTX said he “has no ongoing role” at the company and does not speak on its behalf.

The collapse of FTX has rippled across the industry, stifling liquidity at firms with exposure to what was once one of the world’s largest crypto exchanges, and prompting investigations by regulators in several countries.

Lawmakers in the US Congress said on Wednesday they were planning hearings on FTX before the end of the year, while the New York Department of Financial Services said it was monitoring the situation at Genesis.

While not directly mentioning FTX, Treasury Secretary Janet Yellen said on Wednesday that more effective oversight of the crypto markets is needed to address previously identified risks that were “at the center of the crypto market stress that has occurred over the past week observed,” and urged Congress to act quickly.

Venture capital firm Digital Currency Group, the ultimate parent of Genesis as well as crypto asset manager Grayscale, said on Twitter that Genesis’ decision to suspend redemptions “was made in response to the extreme market disruption and loss of industry confidence caused by the FTX implosion.”

Genesis, which also offers crypto trading and custody services through an unaffected affiliate, had $2.8 billion in total active loans at the end of the third quarter, according to the company’s website.

The suspension at Genesis “has no impact on the business operations of DCG and our other wholly-owned subsidiaries,” the company said.

Still, Grayscale Bitcoin Trust ( GBTC.PK ), the world’s largest bitcoin fund, fell nearly 7% on Wednesday, while the price of bitcoin fell 2.6% to $16,400 and is down about 20% this month.

Crypto exchange Gemini, founded by the Winklevoss twins, said its return-generating “Earn” program, which uses Genesis as its lending partner, would not be able to meet customer redemptions.

Several other crypto firms, including Crypto.com and stablecoin Tether, said on Wednesday they had no exposure to Genesis.

Genesis is not alone in facing the fallout from FTX’s collapse.

Crypto lender BlockFi, which previously admitted to having significant exposure to FTX, plans to lay off workers as it prepares to file for bankruptcy, the Wall Street Journal reported on Tuesday.

Meanwhile, US court filings showed that Bankman-Fried is facing legal action in the United States from investors who claim the company’s income-bearing crypto accounts violated Florida law.

The proposed class action, filed late Tuesday in Miami, alleges that FTX yield-bearing accounts were unregistered securities illegally sold in the United States.

The lawsuit also seeks damages from several celebrities who helped promote FTX, including National Football League quarterback Tom Brady and tennis star Naomi Osaka.

Representatives for Bankman-Fried, Brady and Osaka did not immediately respond to requests for comment.

U.S. and Bahamian authorities have discussed the possibility of bringing Bankman-Fried to the United States for questioning, Bloomberg reported Tuesday.

But Bahamas Police Commissioner Clayton Fernander said Wednesday on the sidelines of a police conclave in Nassau that police had not interviewed or met with Bankman-Fried and that Fernander had not been in communication with U.S. authorities in connection with the case.

LIQUIDATOR SPLASH

FTX Group’s liquidation is a subject of dispute, as the exchange’s Bahamas-based liquidators filed a Chapter 15 petition in a US bankruptcy court in New York late Tuesday, questioning the validity of the US bankruptcy proceedings.

The liquidators, appointed by a Bahamas judge on Nov. 10, said because their filing came before FTX’s bankruptcy filing in the United States, they are the only ones authorized to begin bankruptcy proceedings for FTX and its affiliates .

The US bankruptcy proceedings involve several FTX group companies with more than 100,000, and possibly more than 1 million, creditors.

Elsewhere, crypto exchange Binance said it did not contribute to FTX’s collapse, in a response to a hearing on the crypto industry by a UK parliamentary committee.

As FTX’s problems came to light last week, Binance initially said it would sell its holdings of FTX’s own token FTT, then signed a non-binding letter of intent to buy FTX’s non-US assets before the deal went through be sailed

The US House Financial Services Committee said Wednesday it plans to hold a hearing in December to investigate the collapse of FTX.

Reporting by Alun John and Elizabeth Howcroft in London, Hannah Lang and Chris Prentice in Washington, John McCrank and Dietrich Knauth in New York, Jasper Ward in the Bahamas and Mehnaz Yasmin in Bengaluru; Editing by Lananh Nguyen, Jane Merriman and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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