Crypto lender Genesis Global Capital has recently filed a lawsuit against cryptocurrency exchange Gemini Trust, aiming to recover more than $689 million. The case was brought to the US Bankruptcy Court for the Southern District of New York, alleging that Gemini conducted preferential transfers that totaled approximately $689,302,000. These transfers were disadvantageous to other creditors.
Legal Dispute and Market Turmoil
The lawsuit claims that during the market turbulence caused by the collapse of Terraform Labs and digital asset hedge fund Three Arrows Capital, Gemini made unprecedented withdrawals just before Genesis declared bankruptcy. These withdrawals, which took place within a 90-day period known as the preference period, involved the repayment of previous loans given to Genesis. The lawsuit suggests that these withdrawals were avoidable and were made with the knowledge that Genesis was insolvent.
A Series of Lawsuits and Public Conflicts
The dispute between Genesis and Gemini dates back to the collapse of FTX, triggering a series of public and legal conflicts. In January, Genesis filed for bankruptcy, and subsequently, its parent company, Digital Currency Group (DCG), faced a lawsuit from Gemini in July. The lawsuit accused DCG of making defamatory statements and engaged in a publicity stunt. In response, Genesis sued DCG in September, seeking repayment for multiple loans amounting to over $600 million. Gemini fired back by suing Genesis in October for 60 million shares of the Grayscale Bitcoin Trust (GBTC), with a value of approximately $1.6 billion.
These legal battles have also drawn the attention of US authorities. In January, just before Genesis filed for bankruptcy, the US Securities and Exchange Commission (SEC) accused both Genesis and Gemini of selling unregistered securities. In a lawsuit filed last month, New York Attorney General Letitia James alleged that DCG, Genesis, and Gemini defrauded more than 230,000 investors, including at least 29,000 individuals from New York, of over $1 billion.
The lawsuit stated that Gemini provided funds to Genesis as part of its Earn program, which were then lent out to counterparties such as Three Arrows Capital and Alameda. However, when multiple bankruptcies occurred within the industry, leading to defaults on Genesis’ loans, the company faced a significant financial hole of $1 billion. The lawsuit further accuses DCG of attempting to conceal these losses by falsely claiming to have absorbed them, when in reality, it only issued a promissory note to its subsidiary Genesis. Additionally, the lawsuit claims that Gemini provided false assurances regarding the overcollateralization of Genesis’ loans.
“During a time of extreme market volatility and financial distress, Gemini took actions that unfairly favored themselves at the expense of the other creditors,” – Genesis Global Capital
