On the verge of bankruptcy, facing allegations of fraud, is DCG’s beloved child Genesis officially heading towards liquidation?

DCG's Precious Genesis on the Brink of Bankruptcy Fraud Allegations May Lead to Official Liquidation

Announced bankruptcy at the beginning of the year, now embroiled in a $1 billion fraud lawsuit.

Table of Contents:

· Announced bankruptcy at the beginning of the year, accused of $1 billion fraud

· DCG: Genesis Global is an independent subsidiary

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· Accused of lending Bitcoin to Grayscale “to create GBTC”

Announced bankruptcy at the beginning of the year, accused of $1 billion fraud

October 25, according to Reuters, cryptocurrency lending company Genesis Global announced that due to a civil fraud lawsuit brought against Genesis Global, its parent company Digital Currency Group (DCG), and former partner Gemini Trust Co by New York State Attorney Letitia James, the company may be forced to conduct bankruptcy liquidation that does not involve its claims against DCG.

Earlier, on October 19, Axios reported that New York Attorney General Letitia James announced that her office has sued Gemini Trust, Genesis Global, and DCG for defrauding more than 230,000 investors for over $1 billion. The civil lawsuit also accuses former Genesis CEO Soichiro Moro and DCG founder and CEO Barry Silbert of attempting to conceal Genesis’ true financial condition from Gemini’s trading platform, its clients, and the public.

The lawsuit alleges that Gemini knew that Genesis’ loan collateral was insufficient and was highly concentrated in Alameda at one point, but did not disclose this information to investors. James said, “My office will continue to work to stop deceptive cryptocurrency companies and push for stricter regulations to protect all investors.”

In fact, Genesis Global, which is deeply embroiled in this lawsuit crisis, announced bankruptcy as early as January of this year. On January 20 of this year, according to official news, Genesis Global Holdco and its two loan business subsidiaries Genesis Global Capital, LLC (“GGC”) and Genesis Asia LianGuaicific Pte. Ltd. (“GAP”) officially filed for Chapter 11 bankruptcy protection in the U.S. Federal Court in New York.

DCG: Genesis Global is an independent subsidiary

In addition to allegations of fraud, Genesis Global also had litigation disputes with its parent company DCG.

On September 7, according to Coindesk, Genesis Global Capital filed a lawsuit against Digital Currency Group (DCG) and Digital Currency Group International (DCGI), requesting the repayment of multiple principal amounts exceeding $600 million in loans. Two related documents show that DCG borrowed up to $500 million from Genesis in 2022, while DCGI borrowed 18,697.7 BTC from Genesis in 2019. DCG and Genesis signed the main loan agreement on November 10 of last year, with a grace period or normal maturity date for 2022 loans set for May 9 or 10, 2023. DCGI signed the main loan agreement with Genesis on June 21, 2019, with a similar grace period expiration date in 2023.

In response to this, DCG has also issued a lengthy article clarifying the amount owed, while also stating that “Genesis has its own independent management team, legal advisors, and financial advisors, and has appointed an independent board of directors special committee to oversee the restructuring of Genesis Capital.”

In yesterday’s release of the 2023 third quarter report, DCG also responded to the civil lawsuit, stating that the lawsuit is detrimental to the company and adding that “there is no evidence to suggest that DCG, founder and CEO Barry Silbert, or our employees engaged in any wrongdoing.”

It was once alleged that Bitcoin was lent to Grayscale “to create GBTC”

Genesis Global announced its bankruptcy connection to FTX, Three Arrows Capital, BlockFi, and other companies. FTX once accused Genesis, a cryptocurrency lending institution, of owing as much as $3.9 billion, but Genesis denied this. Later, this amount was reduced to $2 billion. On August 17th, according to The Block, FTX and Genesis Global reached an agreement for Genesis to pay Alameda Research $175 million. Genesis also agreed to waive all other claims against FTX.

Subsequently, Bloomberg analyst James Seyffart provided an interpretation of the lawsuits and their relationships with DCG, Genesis, and Gemini on social media. He pointed out that the only real relationship that may affect GBTC (rather than other declarants) is that Genesis was once the sole authorized participant (AP) of GBTC, and being an AP means agreeing to facilitate the creation and redemption of fund shares. Seyffart stated that most ETFs have multiple APs, and their legal issues, which are often the legal issues of large banks such as Goldman Sachs or Bank of America or other large financial institutions, do not actually affect the operation of ETFs as APs. Genesis has not been the sole authorized participant of GBTC since October 2022.

As the investigation into the event deepens, more details behind Genesis Global’s bankruptcy are coming to light. On September 28th, according to Bloomberg’s sources, cryptocurrency exchange Gemini Trust Co. withdrew hundreds of millions of dollars from Genesis Global Holdco LLC months before it froze its deposits and filed for bankruptcy. The sources revealed that in August 2022, Gemini withdrew approximately $282 million worth of cryptocurrencies from Genesis. These funds were later used as reserves to ensure that Gemini Earn users could redeem their funds immediately. Genesis froze customer withdrawals a few days after the collapse of FTX.

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