Crypto lending unit of Genesis files for U.S. bankruptcy
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[January 20, 2023] (Reuters)
-The lending unit of crypto firm Genesis filed on Thursday for U.S.
bankruptcy protection from creditors, toppled by a market rout along
with the likes of exchange FTX and lender BlockFi.
Genesis Global Capital, one of the largest crypto lenders, froze
customer redemptions on Nov. 16 after FTX stunned the financial world
with its bankruptcy, fuelling concern that other companies could
implode. The company is owned by venture capital firm Digital Currency
Group (DCG).
Genesis' lending unit said it had both assets and liabilities in the
range of $1 billion to $10 billion, and estimated it had over 100,000
creditors in its filing with the U.S. Bankruptcy Court for the Southern
District of New York.
Genesis Global Holdco, the parent group of Genesis Global Capital, also
filed for bankruptcy protection, along with another lending unit Genesis
Asia Pacific.
Genesis Global Holdco said in a statement that it would contemplate a
potential sale or a equitization transaction to pay creditors, and that
it had $150 million in cash to support the restructuring.
It added that Genesis' derivatives and spot trading, broker dealer and
custody businesses were not part of the bankruptcy process, and would
continue their client trading operations.
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Genesis's bankruptcy filing is the latest in a cascade of crypto
failures and steep job cuts triggered by plunging prices last year.
Genesis was already locked in a dispute with Gemini Trust Co, founded by
the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss,
former U.S. Olympic rowers. The two firms are fighting over a crypto
lending product called Earn that they jointly offered.
The Winklevoss twins have said Genesis owed more than $900 million to
some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for
the removal of Barry Silbert as the chief executive of Digital Currency
Group.
About an hour after the bankruptcy filing, Cameron Winklevoss tweeted
that Silbert and Digital Currency Group continued to deny creditors a
fair deal.
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Representations of cryptocurrencies are
seen in front of displayed decreasing stock graph in this
illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration
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"Unless Barry (Silbert) and DCG come to their senses and make a fair
offer to creditors, we will be filing a lawsuit against Barry and
DCG imminently," Winklevoss said in his tweet thread.
Genesis and Gemini were charged by the U.S. Securities and Exchange
Commission on Jan. 12 with illegally selling securities to investors
through the Earn program. Tyler Winklevoss called the complaint
disappointing.
Genesis brokered digital assets for financial institutions such as
hedge funds and asset managers and had almost $3 billion in total
active loans at the end of the third quarter, down from $11.1
billion a year earlier, according to its website.
Last year, Genesis extended $130.6 billion in crypto loans and
traded $116.5 billion in assets, according to its website.
Its two biggest borrowers were Three Arrows Capital, a
Singapore-based crypto hedge fund, and Alameda Research, a trading
company closely affiliated with FTX, a source told Reuters. Both are
in bankruptcy proceedings.
Three Arrows debt to Genesis was assumed by its parent company
Digital Currency Group (DCG), which then filed a claim against Three
Arrows. DCG's portfolio companies also include crypto asset manager
Grayscale and news service CoinDesk.
Crypto lenders, which acted as the de facto banks, boomed during the
pandemic. But unlike traditional banks, they are not required to
hold capital cushions. Earlier this year, a shortfall of collateral
forced some lenders - and their customers - to shoulder large
losses.
(Reporting by Tom Hals in Wilmington, Delaware and Akanksha Khushi;
Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill)
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