Crypto lender Genesis Trading files for bankruptcy protection

Barry Silbert, Founder and CEO, Digital Currency Group

David A Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection late Thursday in Manhattan federal court, the latest casualty in the industry contagion caused by the collapse of FTX and a crippling blow to a company that was once the heart of Barry Silbert’s Digital Currency Group.

The company listed more than 100,000 creditors in a “mega” bankruptcy filing, with total liabilities ranging from $1.2 billion to $11 billion dollars, according to bankruptcy filings.

Three separate petitions were filed for the Genesis holding companies. In a statement, the company noted that the companies were only involved in Genesis’ crypto loans. The company’s derivatives and spot trading business will continue unimpeded, as will Genesis Global Trading.

“We look forward to advancing our dialogue with DCG and our creditor advisors as we seek a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future,” said Derar Islim, interim CEO of Genesis in a statement.

The filing follows months of speculation about whether Genesis would receive bankruptcy protection, and just days after the Securities and Exchange Commission filed a lawsuit against Genesis and its former partner, Gemini, for unregistered offering and selling of securities.

Genesis listed a $765.9 million loan to be paid by Gemini in Thursday’s bankruptcy filing. Other sizeable claims included a $78 million loan payable by Donut, a high-yield, decentralized platform, and a 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 deal.”

“We have made preparations to take direct legal action against Barry, DCG and others,” he continued.

“Sunlight is the best disinfectant,” Winklevoss concluded.

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

The collapse of FTX in November caused a freeze in the market and led customers to look for withdrawals across the crypto landscape. The Wall Street Journal reported that after the collapse of FTX, Genesis had sought a $1 billion relief package but found no interested parties. Parent company DCG, which owes creditors mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.

The crypto contagion

Genesis made loans to crypto hedge funds and over-the-counter companies, but a series of bad bets were made last year severely damaged the lender and forced it to halt withdrawals on November 16.

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

3AC filed for bankruptcy in July, in the middle of the ‘crypto winter’. Genesis had loaned more than $2.3 billion in assets to 3AC, according to court documents. 3AC’s creditors have fought in court to recover even a small portion of the billions of dollars the hedge fund once managed.

Meanwhile, Alameda was integral to FTX’s eventual demise. Bankman-Fried has repeatedly denied knowing about fraudulent activity within his web of companies, but is still unable to provide a substantial explanation for the billion-dollar hole. He was arrested in December and will be released on $250 million bail ahead of his trial, which begins in October.

Genesis had a $2.5 billion exposure to Alameda, though that position was closed in August. Following FTX’s bankruptcy in November, Genesis said about $175 million in Genesis assets were “locked” to FTX’s platform.

The Genesis financial spiral has exposed Silbert’s wider DCG empire. The parent company was forced to assume Genesis’ $1 billion liability resulting from the collapse 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 the stock market trustsallowing investors to hold bitcoin and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Trusts The discount to net asset value increased significantly last year as confidence in the conglomerate waned.

This is an evolving story. Check back later for updates.

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