Crypto lender Genesis Trading files for bankruptcy protection

Barry Silbert, founder and CEO of Digital Currency Group

David A. Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection in Manhattan federal court on Thursday night, the latest casualty in an industry contagion caused by the collapse of FTX and a business-shattering blow to the heart of Barry Silbert’s Digital Currency Group.

The company listed more than 100,000 creditors in its “mega” bankruptcy filing, with liabilities totaling between $1.2 billion and $11 billion, according to bankruptcy filings.

Three separate applications were filed for the Genesis holding companies. In the statement, the company noted that the companies are only engaged in the cryptocurrency business of Genesis. The company’s derivatives and spot trading business will continue unhindered as Genesis Global Trading.

“We look forward to developing our dialogue with DCG and our lenders’ advisors as we seek to implement a way to maximize value and ensure the best opportunity for our business to be well-positioned for the future,” said Derar Islam, interim CEO of Genesis. statement.

The filing follows months of speculation about whether Genesis will enter bankruptcy protection and days after the Securities and Exchange Commission filed charges against Genesis and its onetime partner, Gemini, over the unregistered offering and sale of securities.

Genesis listed a $765.9 million loan due from Twins in its bankruptcy filing Thursday. Other significant claims include a $78 million loan due from Donut, a high-yield decentralized platform, and the VanEck fund with a $53.1 million loan.

Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair settlement.”

“We are preparing to take direct legal action against Barry, DCG and others,” he said.

“Sunlight is the best disinfectant,” Winklevoss said.

Genesis is in talks with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter told CNBC. The bankruptcy puts Genesis alongside other fallen cryptocurrency exchanges, including BlockFi, FTX, Celsius and Voyager.

The bankruptcy of FTX in November created a market freeze, prompting customers to try to withdraw money from the cryptocurrency. The Wall Street Journal reported that Genesis sought a $1 billion emergency bailout after FTX’s collapse, but found no interested parties. Parent company DCG, which owes more than $3 billion to creditors, suspended dividends this week, CoinDesk reported.

Crypto contagion

Genesis has made loans to crypto hedge funds and over-the-counter firms, but it made a series of bad bets last year. severely damaged the lender and forced it to stop repossession on November 16.

The New York-based firm made crypto loans to Three Arrows Capital (3AC), a hedge fund founded by Sam Bankman-Fried and closely associated with his FTX exchange, and Alameda Research.

3AC filed for bankruptcy in July in the middle of the “crypto winter.” According to court documents, Genesis owed 3AC more than $2.3 billion in assets. 3AC’s creditors have been fighting in court to get back even a fraction of the billions of dollars the hedge fund once controlled.

Meanwhile, Alameda played an integral role in the eventual demise of FTX. Bankman-Fried has repeatedly denied knowledge of fraudulent activity at the company’s network, but has been unable to provide a reasonable explanation for the multibillion-dollar gap. He was arrested in December and released on $250 million bail ahead of his October trial.

Genesis had a $2.5 billion exposure to Alameda, although that position was closed in August. After FTX’s bankruptcy in November, Genesis said approximately $175 million worth of Genesis assets were “locked up” on the FTX platform.

Genesis’ financial spiral exposed Silbert’s wider DCG empire. The parent company was forced to assume Genesis’ $1 billion liability stemming from the breakup of 3AC. In a later letter to investors, Silbert disclosed an additional $575 million loan from Genesis to DCG for undisclosed investment purposes.

DCG pioneered going public trustsallowing investors to hold bitcoin and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Trust’s The discount to net asset value widened significantly last year due to declining confidence in the conglomerate.

This is an evolving story. Please check for updates.

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