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On the verge of bankruptcy and accused of fraud, is DCG's own son Genesis officially heading for liquidation?
Summarized by AI
Table of Contents:
· Declared bankruptcy at the beginning of the year, accused of $1 billion fraud
· DCG: Genesis Global is an independent subsidiary
· Once accused of lending Bitcoin to Grayscale "to create GBTC"
Declared bankruptcy at the beginning of the year, accused of $1 billion fraud
On October 25, according to Reuters, cryptocurrency loan company Genesis Global said that due to the civil fraud lawsuit filed by New York State Attorney Letitia James against Genesis Global, its parent company Digital Currency Group (DCG) and former partner Gemini Trust Co, the company may be forced to conduct transactions that do not involve it. DCG's bankruptcy liquidation of claims.
Previous news, October 19, according to Axios, New York Attorney General Letitia James announced that her office has sued Gemini Trust, Genesis Global and DCG for defrauding approximately 230,000 investors of more than $1 billion. The civil lawsuit also accuses former Genesis CEO Soichiro Moro and DCG founder and CEO Barry Silbert of trying to conceal the true financial status of its lending division Genesis from the Gemini trading platform, its customers and the public.
The indictment states that Gemini knew that Genesis's loans were undersecured and were once highly concentrated in Alameda, but did not disclose this information to investors. "My office will continue to work to stop deceptive cryptocurrency companies and push for stricter regulations to protect all investors," James said.
In fact, Genesis Global, which is in the midst of a litigation crisis, declared bankruptcy as early as January this year. On January 20 this year, according to official news, Genesis Global Holdco and its two loan business subsidiaries, Genesis Global Capital, LLC ("GGC") and Genesis Asia Pacific Pte. Ltd. ("GAP"), formally filed for Chapter 11 bankruptcy protection in the New York Federal District Court.
DCG: Genesis Global is an independent subsidiary
In addition to suspected fraud, Genesis Global has also had litigation disputes with its parent company DCG.
In response, DCG also issued a long article to clarify the amount owed and pointed out that "Genesis has its own independent management team, legal advisors and financial advisors, and has appointed a special committee of independent directors to be responsible for the restructuring of Genesis Capital."
Related reading:《DCG responds to all potential thunder points (full text): Relationship with Genesis, Three Arrows, FTX, LUNA》
Like other institutional investors, DCG borrows funds from Genesis's lending arm, Genesis Capital. These loans are always based on arm's length principles and are priced at prevailing market rates. In addition to the promissory note discussed in Question 14 below, DCG currently owes Genesis Capital $447.5 million and 4,550 BTC (about $78 million), which will mature in May 2023.
When DCG released its 2023 third quarter financial report yesterday, DCG also responded to the civil lawsuit, pointing out that the civil lawsuit was unfavorable to the company, and added that "there is no evidence of misconduct by DCG, founder and CEO Barry Silbert or our employees."
Once accused of lending Bitcoin to Grayscale "to create GBTC"
Genesis Global's bankruptcy declaration is inextricably linked to companies such as FTX, Three Arrows Capital, and BlockFi, because FTX had accused Genesis, a crypto lender, of owing it up to $3.9 billion, but Genesis denied it. Later, the amount was reduced to $2 billion. On August 17, The Block reported that FTX and Genesis Global had reached an agreement that Genesis would pay Alameda Research $175 million. Genesis also agreed to waive all other claims against FTX.
Related reading: 《DCG responds to Genesis bankruptcy: It is in contact with creditors and will help repay debts》
Genesis will lend Bitcoin to companies such as Three Arrows Capital and BlockFi that have gone bankrupt, and then Three Arrows Capital and BlockFi will turn around and give the borrowed Bitcoin to Grayscale to create GBTC shares. Since Genesis and Grayscale are both subsidiaries of the DCG Group, the entire mechanism is similar to a game of left-hand to right-hand transfer, earning interest from companies such as Three Arrows Capital and BlockFi, but transferring the risk to them.
After that, Bloomberg analyst James Seyffart made an interpretation on the social platform about the DCG, Genesis, Gemini lawsuits and their relevance, pointing out that the only real relationship that may affect GBTC (rather than other declarants) is that Genesis was the only authorized participant (AP) of GBTC, and becoming an AP means agreeing to become a facilitator of fund share creation and redemption. Seyffart said that most ETFs have multiple APs, and they are often large banks. Legal issues of companies like Goldman Sachs or Bank of America or some other large financial institutions will not actually affect ETFs operating as APs. Genesis will no longer be the only authorized participant of GBTC from October 2022.
As the investigation into the incident deepens, more details behind the bankruptcy of Genesis Global are also emerging. On September 28, Bloomberg reported, citing people familiar with the matter, that the cryptocurrency trading platform Gemini Trust Co. had withdrawn hundreds of millions of dollars from Genesis Global Holdco LLC months before Genesis Global froze deposits and filed for bankruptcy. Sources said that in August 2022, Gemini withdrew approximately $282 million in cryptocurrency from Genesis. The funds were later used as reserves to ensure that Gemini Earn users could redeem their funds immediately. A few days after the collapse of FTX, Genesis froze customer withdrawals.
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