Crypto Lending Company Genesis Capital files for Bankruptcy after SEC Lawsuit

Written by Johnson Philip

Genesis Capital, a subsidiary of Digital Currency Group (DCG) and a provider of crypto lending services, has filed for Chapter 11 bankruptcy protection. The move comes as a result of a lawsuit filed against the company by the U.S. Securities and Exchange Commission (SEC). Despite the bankruptcy filing, Genesis has stated that it has enough financial resources to maintain its operations and successfully navigate the restructuring process. 

Genesis Capital files for Chapter 11 Bankruptcy

Genesis Global Holdco LLC, a prime brokerage subsidiary of Digital Currency Group (DCG), has announced that it has filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.

The filing includes the company’s two lending subsidiaries, Genesis Global Capital LLC and Genesis Asia Pacific Pte. Ltd. However, other subsidiaries involved in derivatives and spot trading, custody businesses, and Genesis Global Trading are not included in the filing and will continue to operate as usual.

“As part of its Chapter 11 filing, Genesis has proposed a roadmap to an exit including a Chapter 11 plan,” the company detailed, adding: 

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.

According to Derar Islim, the interim CEO of Genesis, the company has been facing liquidity issues prior to the filing for bankruptcy, which was caused by the default of crypto hedge fund Three Arrows Capital and the collapse of crypto exchange FTX. The company has been trying to resolve these issues and Islim was appointed to his position last August to address these challenges.

Genesis Capital claims to have more than $150 million in cash on hand that “will provide ample liquidity to support its ongoing business operations and facilitate the restructuring process.” The company has filed motions with the bankruptcy court “to enable day-to-day operations to continue in the normal course.” The announcement adds: “Redemptions and new loan originations in the lending business remain suspended, and claims will be addressed through the Chapter 11 process.”

Repaying Gemini Earn Investors

Genesis has stated that it plans to use the court-supervised restructuring process to engage in discussions with its creditors and parent company DCG, in an effort to find a comprehensive solution for its lending business. This would provide an optimal outcome for Genesis clients and Gemini Earn users.

It’s worth noting that Genesis and crypto exchange Gemini has been in a dispute over Gemini’s crypto lending program, Earn. Genesis had frozen withdrawals last November while holding approximately $900 million in assets from more than 340,000 Gemini Earn investors.

Gemini co-founder Cameron Winklevoss stated on Twitter Friday that Genesis’ bankruptcy filing “is a crucial step” towards Earn customers being able to recover their assets. However, he noted, “Crucially, the decision to put Genesis into bankruptcy does not insulate Barry [Silbert], DCG, and any other wrongdoers from accountability,” elaborating:

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) filed charges against both Gemini and Genesis Global Capital for offering and selling securities to retail investors through the Gemini Earn crypto asset lending program without proper registration.

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