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Crypto lender Genesis Trading files for bankruptcy protection

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Barry Silbert, Founder and CEO, Digital Currency Group

David A. Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection Thursday night in Manhattan federal court, the latest casualty in the industry contagion wrought by the FTX meltdown and a crippling blow to a once-the-world business. heart of Barry Silbert’s Digital Currency Group.

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

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

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

The filing comes after months of speculation over whether Genesis would enter bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its former partner, Gemini, over the failed offer and sale. registered title.

Genesis listed a $765.9 million loan payable from Gemini in Thursday’s bankruptcy filing. Other sizable claims included a $78 million loan payable from Donut, a high-yield decentralized platform, and a VanEck fund, with a $53.1 million loan payable.

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

“Sunlight is the best disinfectant,” concluded Winklevoss.

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 slumped cryptocurrency exchanges including BlockFi, FTX, Celsius and Voyager.

The FTX meltdown in November froze the market and sent clients across the crypto landscape seeking withdrawals. The Wall Street Journal reported that, following the collapse of FTX, Genesis had sought a $1 billion emergency bailout but found no interested parties. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.

The Cryptographic Contagion

Genesis has provided loans to crypto hedge funds and over-the-counter companies, but a series of bad bets made in the last year seriously injured the creditor and forced him to stop the withdrawals on 16 November.

The New York-based firm has extended crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund started by Sam Bankman-Fried and closely linked to its FTX exchange.

3AC filed for bankruptcy in July, in the midst of the “crypto winter”. Genesis had lent more than $2.3 billion in assets to 3AC, according to court documents. 3AC’s creditors have been fighting in court to recover even a pittance of the billions of dollars the hedge fund controlled.

Meanwhile, Alameda was an integral part of FTX’s eventual demise. Bankman-Fried has repeatedly denied knowledge of fraudulent activity at its network of companies, but remains unable to provide a substantive explanation for the multibillion-dollar hole. He was arrested in December and released on $250 million bail before his trial, which is due to begin in October.

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

Genesis’ financial spiral exposed Silbert’s wider DCG empire. The parent company was forced to assume Genesis’ $1 billion liability arising 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 publicly traded equities trustallowing investors to hold bitcoin and other currencies in their portfolio without direct exposure. Bitcoin trust in shades of gray the discount to net asset value increased significantly last year as trust in the conglomerate waned.

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