A second set of Genesis Global creditors — direct clients of the crypto firm’s lending arm rather than through Gemini — claim that the lender misled them into believing their money would be safe, and that they are now down hundreds of millions of dollars.
Following rumors that the lender had huge losses connected to Three Arrows Capital (3AC), the multibillion-dollar hedge fund that went bankrupt in May, at least one member of the group withdrew all of his money from Genesis in late spring.
However, the creditor, who did not want to be identified because he is still negotiating with Genesis, ended up injecting more than $10 million back into the company in the second half of last year. He claims that he was enticed back in by encouraging emails from Genesis salespeople and the delivery of monthly balance sheets that appeared to suggest the firm’s financial status was stable in late summer and early fall.
According to the creditor, those statements were false and concealed the firm’s mounting financial issues.
The newest claim adds to the growing list of Genesis’ slighted creditors. In December 2022, it was reported that creditors who have sought legal advice on the firm’s near-bankruptcy currently amount to approximately $1.8 billion in loans, which is expected to grow further.
Genesis then assured its investors that it was attempting to avoid bankruptcy after it was reported on Tuesday that the firm’s creditors were coordinating with restructuring lawyers to avert insolvency.
“Our goal is to resolve the current situation in the lending business without the need for any bankruptcy filing,” a Genesis spokesperson said.
According to those familiar with the situation who recently spoke with the Financial Times, Genesis owes creditors more than $3 billion, leading its parent firm Digital Currency Group (DCG) to consider selling assets in its extensive venture portfolio to acquire funds.
DCG is reportedly considering selling some of its venture capital holdings, which include 200 crypto-related companies such as exchanges, banks, and custodians in at least 35 countries and are valued at approximately $500 million.
Genesis announced in November 2022 that it would be halting redemptions and withdrawals on its lending products following now-bankrupt crypto exchange FTX’s implosion, blaming “unprecedented market turmoil.”
Likely the most prominent creditor of Genesis, Gemini, is claiming that the crypto broker owes their Earn program clients around $900 million. Gemini co-founder Cameron Winklevoss went as far as accusing DCG and Genesis of committing accounting fraud, misrepresenting their financial standing so that clients like Gemini would continue their business with the crypto trading platform.
In connection with this, three Gemini Earn users have filed a class action arbitration request against Genesis and DCG. The claimants contend that Genesis has failed to return their and all other Gemini Earn users’ digital assets as mandated by the firm’s and users’ Master Agreements, as well as breaching such agreement when the company became insolvent in the summer of 2022 but concealed the situation from its clients.
They also allege that Genesis then participated in a sham transaction with its parent company, DCG, to disguise its insolvency, surrendering the right to collect a $2.3 billion debt owing to Genesis by the now-insolvent hedge fund Three Arrows Capital in exchange for a $1.1 billion promissory note due in 2033.
The situation is a complete turnaround from November 2022 when Gemini announced the update on its Earn program after Genesis halted its trading. The company then said that they “are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program.”
They also relayed then that the difficulties with the Earn program are said not to impact other products and services offered by Gemini. The company affirmed that its customer funds are backed 1:1 and “available for withdrawal at any time.”
Information for this briefing was found via Financial Times, Protos, 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.