Genesis Global Capital is once again sounding the alarm for a potential bankruptcy filing, taking it further this time with reports of the crypto firm’s creditors wanting to negotiate a prepackaged bankruptcy plan with the company.
According to persons familiar with the situation, the Digital Currency Group’s crypto lending subsidiary is preparing to file for bankruptcy as soon as this week. The firm is also rumored to be in the midst of a liquidity crisis and is in confidential talks with numerous creditor groups.
Following the FTX implosion in November, Genesis Global Capital froze redemptions and new loan originations. Its crypto brokerage unit was struggling to raise at least $1 billion to cover the liquidity struggles and warned potential investors that if its attempts fail, it may have to declare bankruptcy.
However, CEO Derar Islim then assured investors that Genesis Global Trading is funded and operated independently of the lending entity. The bankruptcy threat then surfaced at the same time that Genesis declared it has “no plans to file bankruptcy imminently.”
“Our goal is to resolve the current situation consensually without the need for any bankruptcy filing,” the firm said in an emailed statement.
But one of the creditors, Gemini–whose Earn program was greatly affected by Genesis’ withdrawal freeze–has been demanding some action on how it can make its customers whole. Gemini co-founder Cameron Winklevoss has been involved in a public feud with DCG CEO Barry Silbert, demanding the crypto conglomerate to “pay back the $900 million” that they owe to more than 340,000 Earn users.
Last Thursday, the Securities and Exchange Commission charged both Gemini and Genesis Global for “the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.”
A prepackaged filing is one in which the debtor negotiates the parameters of its plan and solicits votes from creditors prior to filing, with the purpose of shortening the time it takes to exit from bankruptcy protection.
According to one of the sources who spoke with The Block, creditors such as Gemini would consent to a forbearance term — in most cases — of one to two years under the prepackaged bankruptcy plan. Creditors will receive cash payments and ownership in Genesis parent company DCG in exchange.
Earlier, DCG also suspended distributing its quarterly dividend in order to preserve its cash reserves. According to a Jan. 17 letter to shareholders, the move comes as the company works on “strengthening our balance sheet by reducing operating expenses and preserving liquidity.”
Silbert, however, still attempted to assuage investors’ fears, writing in a letter this month that he has “no doubt that DCG will emerge from this year a stronger company than ever before.” His net worth, once estimated at $3 billion, is now estimated to be less than $1 billion, according to the Bloomberg Billionaires Index.
Winklevoss, in an open letter to the DCG board, called for Silbert’s resignation, saying there is “no path forward” until the crypto firm’s CEO is no longer at the helm.
Information for this briefing was found via Bloomberg, The Block, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.