Gemini Sues Bankrupt Lender Genesis Over $1.6 Billion in Grayscale Bitcoin Trust Shares
Summary:
Gemini, a cryptocurrency exchange, has taken legal action against bankrupt crypto lender Genesis Global Holdco in the Southern District of New York Bankruptcy Court over the fate of 62,086,586 shares of Grayscale Bitcoin Trust, valued at around $1.6 billion. The shares were used as collateral for loans made by Gemini users to Genesis. The suit accuses Genesis and its parent company, Digital Currency Group (DCG), of misusing the collateral and withholding over $1 billion in digital assets from Gemini Earn users. Gemini Earn users account for 99% of Genesis creditors and 28% of all claims by value. Gemini, Genesis and DCG are previously tied up with lawsuits for offering unregistered securities and defrauding clients.
On October 27, Gemini, a cryptocurrency exchange platform, initiated an adversary process in the Southern District of New York Bankruptcy Court against Genesis Global Holdco, a crypto lending company that is bankrupt. The contention revolves around the destiny of 62,086,586 Grayscale Bitcoin Trust (GBTC) shares which were employed as guarantees for loans given by 232,000 Gemini clients to Genesis via the Gemini Earn Scheme. The collateral is presently valued at almost $1.6 billion.
Gemini has reported getting $284.3 million by foreclosing on the collateral to assist Earn customers. However, this action has been contested by Genesis, hindering Gemini from dispersing the earnings. In efforts to apportion out hundreds of millions of dollars to other creditors, Genesis has suggested considering the collateral’s initial worth, exceeding $800 million, for determining the Earn Users' deficiency claims rather than the foreclosure value.
The lawsuit also reportedly suggests illicit actions made by Genesis' parent company, Digital Currency Group (DCG), including the action of providing Genesis with additional collateral for direct distribution to Gemini to aid Earn Users. However, Genesis is planning on utilizing the collateral for several other tasks. Responding to such acts, Gemini argued that recognizing Earn Users’ rights on the additional collateral and verifying Gemini's legitimate foreclosure on the initial collateral would speed up the return of over $1 billion in digital assets to the Earn Users. According to the lawsuit, nearly all Genesis creditors are Gemini Earn users, and their claims represent 28% of all the claims by value.
Genesis applied for bankruptcy earlier this year after suspending withdrawals the previous November, affecting the Gemini Earn scheme. Gemini filed a lawsuit in July against DCG and its CEO Barry Silbert, accusing them of fraud linked to the Earn scheme. As of now, Gemini has begun an Adversary Proceeding in the Bankruptcy Court against Genesis, aiming to recover $1.6 billion worth of value to benefit the Earn Users. Gemini claims that Genesis has been redirecting this amount from the Earn users to other creditors over the past year.
Additionally, the United States Securities and Exchange Commission has levied a lawsuit against the ex-partners, accusing Gemini Earn of offering unregistered securities. In a separate lawsuit, the New York Attorney General, Letitia James, has accused Gemini, Genesis, and DCG of defrauding its clients via the Earn scheme, including 29,000 New Yorkers. She asserted that Gemini possessed knowledge of the precarious financial status of Genesis. Grayscale, another company owned by DCG, and Genesis Global Holdco did not respond to the enquiries sent out by Cointelegraph by the time of publication.
Published At
10/27/2023 8:29:14 PM
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