Gemini, one of the prominent cryptocurrency exchanges, has filed a legal suit against Genesis Global Holdco, a bankrupt crypto lender, in the Southern District of New York Bankruptcy Court. The dispute revolves around the fate of 62,086,586 shares of Grayscale Bitcoin Trust (GBTC), which were utilized as collateral for loans extended to Genesis by users participating in Gemini’s Earn Program. With a current valuation of nearly $1.6 billion, this collateral has become the center of attention in the legal battle.
Gemini claims to have foreclosed on the collateral and obtained $284.3 million to benefit the Earn users. However, Genesis has contested this action, hindering Gemini from distributing the proceeds. Genesis has proposed using the initial value of the collateral, which exceeded $800 million, to determine the deficiency claim of Earn Users. By doing so, they aim to allocate hundreds of millions of dollars to other creditors, raising concerns from Gemini.
Gemini argues that they took on the market risk associated with the initial collateral for the benefit of Earn Users post-foreclosure, making it reasonable for Earn Users to receive any gains from that risk. The lawsuit also alleges that Digital Currency Group (DCG), Genesis’ parent company, transferred additional collateral to Genesis with the explicit purpose of onward distribution to Gemini for the benefit of Earn Users. However, Genesis has put forth plans to utilize this collateral for different purposes, a move Gemini deems as wrongful.
The majority of Genesis’ creditors are Gemini Earn users, accounting for 99% of them. Their claims represent 28% of the total claims by value. Genesis declared bankruptcy in January after a suspension of withdrawals in November 2022, which directly affected the Gemini Earn program.
This legal battle takes place amidst other ongoing issues for both companies. They are currently defendants in a case brought by the United States Securities and Exchange Commission, as the SEC claims that Gemini Earn offered unregistered securities. Additionally, the New York Attorney General Letitia James has sued Gemini, Genesis, and DCG, accusing the Earn program of defrauding users and claiming that Gemini was aware of Genesis’ precarious financial condition.
As of now, Genesis Global Holdco has not responded to inquiries regarding this matter. It is essential to note that Grayscale is also owned by DCG.
The legal proceedings between Gemini and Genesis Global Holdco highlight the challenges and uncertainties that can arise within the cryptocurrency industry. As the fate of the collateral remains uncertain, stakeholders and investors will be closely following the court’s decision.
