The fallout from the spectacular implosion of crypto giant FTX has triggered a cascade of wide-reaching effects: It’s ensnared a list of celebrities who endorsed the now-bankrupt platform, and financial contagion is spreading to other firms across the vast crypto and digital-asset ecosystem.
On Wednesday, the lending arm of crypto brokerage Genesis suspended redemptions and new loan originations after an “abnormal” number of withdrawal requests that exceeded its current liquidity, citing market turmoil from the failure of FTX.
Genesis said it was working with advisers “to explore all possible options,” adding that it would release a plan for the lending business next week. “We’re working tirelessly to identify the best solutions for the lending business, including among other things, sourcing new liquidity,” the company said.
Genesis’ lending unit had about $2.8 billion in active loans in the third quarter, according to its website.
The suspension comes as the entire crypto industry is on edge following the unraveling of Sam Bankman-Fried’s FTX exchange and Alameda Research hedge fund, both of which filed for bankruptcy late last week.
“In the crypto world, the minute you see a company or firm announce ‘we’re temporarily halting withdrawals’ — yikes,” said Daniel Roberts, editor-in-chief of Decrypt Media, a crypto-focused news outlet. “You put them on death watch now … It’s unusual that someone says ‘we’re halting withdrawals’ and then they say, ‘OK, withdrawals back on, we’re good.’”
That “death watch” is not confined to Genesis.
Soon after the company suspended withdrawals, one of its partners, Gemini — the crypto firm founded by Tyler and Cameron Winklevoss — warned customers that redemptions under its Earn program would be delayed. Gemini said it was working with Genesis to help customers redeem funds from the program, which allowed customers to earn interest on crypto holdings. No other Gemini products or services were affected, the company said.
Meanwhile another big player in the crypto space, BlockFi, halted withdrawals last week as FTX came unglued. On Tuesday, the Wall Street Journal reported BlockFi was preparing for a potential bankruptcy filing.
And the legal headaches for Bankman-Fried, FTX’s founder who resigned as CEO last week, are piling up.
On Wednesday an FTX investor sued Bankman-Fried as well as several celebrities who have endorsed the platform, including Tom Brady, Gisele Bundchen and Steph Curry. “The deceptive FTX platform maintained by the FTX entities was truly a house of cards,” the proposed class-action lawsuit states.
Heavyweight lawyers Adam Moskowitz and David Boies filed the suit on behalf of an FTX customer, Edwin Garrison.
Moskowitz, a Florida lawyer, is also behind a class-action suit against crypto broker Voyager Digital, which also filed for bankruptcy earlier this year. And Boies is perhaps best known for representing Vice President Al Gore in 2000’s Bush v. Gore.
In an email to CNN Business, Moskowitz alleged FTX was “a massive Ponzi scheme larger than the Madoff scheme.”
“FTX were geniuses at public relations and marketing, and knew that … [it] could only be successful with the help and promotion of the most famous, respected, and beloved celebrities and influencers in the world,” Moskowitz wrote.
Representatives for Brady, Bundchen and Curry didn’t immediately respond to CNN Business’ request for comment.