Crypto lender Genesis declares bankruptcy as digital currency woes widen
Cryptocurrency lending company Genesis is seeking Chapter 11 bankruptcy protection as faltering prices and the collapse of FTX Trading continue to rattle the industry.
Genesis filed for bankruptcy on Thursday in the Southern District of New York. Genesis said its other subsidiaries tied to derivatives and spot trading are not included in the filing and continue client trading operations. The company said that it has more than $150 million in cash on hand.
The Genesis bankruptcy further tarnishes the credibility of the crypto industry, which enjoyed widespread adoption during the coronavirus pandemic but is now under scrutiny as consumers question the safety of their investments. Hopeful investors tried their hand at buying bitcoin, solana, ether and other coins in recent years only to lose billions of dollars as crypto companies fell prey to hacks and scams, filed for bankruptcy or blocked users from accessing their funds.
Such risks are rife in the industry, which remains largely unregulated in the U.S. and in many markets around the world.
Dispute with Gemini
Bankruptcy court documents show that the firm's lending unit owes more than $3 billion to its top 50 creditors. The largest claim, reported Bloomberg, involves customers of Gemini, the crypto exchange run by twin Olympic rowers and disputed Facebook founders Tyler and Cameron Winklevoss.
Last week, the Securities and Exchange Commission went after Gemini and Genesis Global Capital, alleging the two companies were selling unregistered securities through a popular program that was supposed to give high interest payments on crypto deposits.
The SEC's lawsuit against Gemini and Genesis is part of a broader cryptocurrency crackdown by multiple U.S. government agencies after crypto prices fell sharply last year, exposing mostly retail investors to billions of dollars in losses.
In a series of tweets this morning, Cameron Winklevoss said Gemini is preparing to take legal action against Genesis parent company Digital Currency Group and its CEO, Barry Silbert. "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," Winklevoss tweeted.
Plans to restructure
As part of its bankruptcy filing, Genesis is engaged "in a court-supervised restructuring process" which includes creating a trust that will distribute assets to creditors, the company said in a statement.
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"While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders," interim CEO Derar Islim, who took on the role in August, said in a statement.
FTX and Three Arrows Capital both filed for bankruptcy last year, along with Celsius Network and Voyager Digital. Genesis' bankruptcy comes as the digital currency market is steeped in a so-called "crypto winter" — the industry's version of a bear market.
The Associated Press contributed reporting.
