Crypto Lender Genesis Files for Bankruptcy Following SEC Lawsuit

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Genesis, a subsidiary of the Digital Currency Group (DCG), is declaring bankruptcy under Chapter 11. The filing came after the U.S. Securities and Exchange Commission filed a complaint (SEC). In order to maintain its continued business activities and aid the restructuring process, Genesis claims to have “ample liquidity.”

Genesis’ Bankruptcy Filing

In a voluntary Chapter 11 bankruptcy filing in the U.S. Bankruptcy Court for the Southern District of New York, Genesis Global Holdco LLC, a prime brokerage division of venture capital firm Digital Currency Group (DCG), announced its decision on Friday.

While “other subsidiaries involved in the derivatives and spot trading and custody businesses and Genesis Global Trading are not included in the filing and continue client trading operations,” the announcement makes it clear that the company’s two lending business subsidiaries, Genesis Global Capital LLC and Genesis Asia Pacific Pte. Ltd., are included in the bankruptcy filing.

The business stated: “As part of its Chapter 11 petition, Genesis has suggested a route to an exit including a Chapter 11 plan.”

The plan contemplates a dual track process in pursuit of a sale, capital raise and/or equitization transaction that would enable the business to emerge under new ownership.

Genesis’ interim CEO, Derar Islim, stated that previous to declaring bankruptcy, the business had been working to “remedy liquidity concerns,” such as those brought on by the failure of cryptocurrency hedge fund Three Arrows Capital (3AC) and the demise of cryptocurrency exchange FTX. Islim was hired for the job in August of last year.

The cash Genesis claims to have on hand, which “will provide enough liquidity to fund its continued business activities and aid the restructuring process,” totals more than $150 million. In order to “allow day-to-day activities to continue in the usual course,” the company has filed papers with the bankruptcy court. The statement continues:

 Redemptions and new loan originations in the lending business remain suspended, and claims will be addressed through the Chapter 11 process.

Genesis stated that it intends to advance negotiations with its creditors and parent company DCG through a court-supervised restructuring process in the hopes of finding “a holistic solution for its lending business, which, if achieved, would provide an optimal outcome for Genesis clients and Gemini Earn users.”

Due to Gemini’s cryptocurrency loan service Earn, Genesis and the cryptocurrency exchange have been at odds. Genesis halted withdrawals in November of last year despite keeping more than 340,000 Gemini Earn investors’ money totaling almost $900 million.

Cameron Winklevoss, co-founder of Gemini, wrote on Twitter on Friday that Genesis’ bankruptcy filing “is an important step” in helping Earn customers get their assets back. He elaborated, saying: “Crucially, the decision to declare Genesis bankrupt does not shield Barry [Silbert], DCG, and any other wrongdoers from accountability.”

We have been preparing to take direct legal action against Barry, DCG, and others who share responsibility for the fraud that has caused harm to the 340,000+ Earn users and others duped by Genesis and its accomplices.

“Unless Barry and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently. We also believe that — in addition to owing creditors all of their money back — Genesis, DCG, and Barry owe them an explanation. Bankruptcy court provides a much-needed forum for that to happen,” the Gemini co-founder concluded.

Last week, the U.S. Securities and Exchange Commission (SEC) charged both Gemini and Genesis Global Capital “for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.”

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