Binance Sells Gopax’s Genesis Asset Rights at Steep Discount, Leading to Significant Losses

Binance, the largest shareholder of the South Korean cryptocurrency exchange Gopax, sold the asset claims of Gopax victims at less than half their face value on May 27.

The discounted sale has led to substantial financial losses for investors, contradicting Binance’s earlier promise to fully compensate victims of the virtual asset deposit service ‘GoFi.’ The sale occurred amid rising cryptocurrency prices, exacerbating the losses for Gopax’s creditors.

Initial Promises and Unexpected Actions Concerning Gopax Victims Asset Claims

When Binance acquired a majority stake in Gopax, it committed to compensating investors for the approximately KRW 70 billion (around $52 million) lost due to suspending fund withdrawals in the ‘GoFi’ service. Instead of using its funds to cover these losses, Binance sold the victims’ asset claims at extremely discounted rates.

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Although Genesis Capital’s bankruptcy compensation plan has been approved, unlike Gemini,…

— 블루밍비트 (@bloomingbit_io) May 27, 2024

Following the sale, the price of major cryptocurrencies, including Bitcoin, surged, further increasing the financial gap. The debt to GoFi has now increased to an estimated KRW 100 billion (around $75 million), excluding existing repayments.

An anonymous source familiar with the transaction disclosed to the local news agency Hankyung that Binance offloaded the claims as part of its strategy to manage Gopax’s liabilities.

“Binance initially promised to cover the Gopax victims’ funds with its Industrial Recovery Fund (IRI), but IRI was only used to pay the first damage (about 15 billion won),” the source said. “From the second payment onwards, we paid with Bitcoin obtained by selling the Genesis claim at a low price to a third party, and we are delaying the payment of the remaining 50% of the damage, saying we will pay it after the Gopax acquisition is completed.”

Investor Discontent and Regulatory Scrutiny

Notably, Genesis, the virtual asset deposit service associated with Gopax, had its bankruptcy compensation plan approved by a U.S. court last week. Genesis has committed to returning 77% of the approximately $3 billion in bond funds to creditors.

In contrast, Gemini, another cryptocurrency exchange with funds tied up in Genesis, announced plans to compensate 97% of its affected customers using bankruptcy compensation. Gopax, however, has not made any official statements regarding its compensation plans or the sale of Genesis asset claims.

In a similar case involving the bankrupted FTX exchange, Sunil Kavuri, a leading creditor in the FTX creditor community, criticized the sale of assets at discounted prices, arguing that these assets should have been returned to investors. Kavuri stated,

“Sullivan & Cromwell has trampled over our property rights,” Kavuri said. “They have liquidated billions of dollars of crypto assets. There’s a token S&C sold at 11 cents; it’s now trading at two dollars. FTX had $10 billion in Solana tokens — they sold it at a 70% discount.”

Gopax’s board of directors, which includes Binance representatives, has been accused of withholding information regarding the source of funds used to compensate the second batch of victims last August. The secrecy and the 50% discount at which the Genesis claims were sold have fueled investor frustration and distrust.

The Financial Services Commission (FSC) of South Korea is reviewing Gopax’s executive change report, including appointing Binance personnel as directors. The FSC has also requested additional information from Binance regarding the allegations of money laundering and other concerns.