The cryptocurrency lender Genesis Global Capital and Genesis Global Holdco and another subsidiary have filed for Chapetr 11 Bankruptcy in New York, as widely expected. The company is a casualty of the FTX collapse. That’s because it extended significant loans to Alameda, the market maker and hedge fund at the center of the FTX failures. It also made a $1.2 billion loss from the collapse of Three Arrows Capital (3AC) earlier in 2022.
However, the crypto custody and trading arms are not part of the bankruptcy procedure.
According to a statement, the companies in Chapter 11 aim to pursue ‘a sale, capital raise and/or equitization transaction’.
The amount owed to the top 50 creditors comes to $3.5 billion. Eight of them are owed more than $100 million each, with two un-named creditors owed more than $400 million each. The company says that at the end of November 2022, its assets were $5.3 billion and liabilities $5.1 billion.
It’s known that 340,000 Gemini Earn clients had Genesis accounts. There has been a high profile dispute with the Winkelvoss brothers, that own Gemini. That’s because Genesis handled the Gemini Earn program and Gemini clients cannot retrieve $900m (Genesis says $766m) of their funds after Genesis Global Capital paused withdrawals two months ago.
The SEC is suing both Gemini and Genesis over their lending activities which it says is an unregulated securities offering that has caused losses to customers.
“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, Interim CEO, Genesis. “We deeply appreciate our clients’ ongoing patience and partnership as we work towards an equitable solution.”
Genesis says it has more than $150 million in cash. The group is a subsidiary of the Digital Currency Group (DCG) which Barry Silbert runs. DCG has been a prolific investor in the blockchain, crypto and web3 sectors for years and owns other high profile organizations such as asset manager Grayscale and Coindesk, which is reportedly up for sale.
Following the collapse of 3AC, DCG issued a $1.1 billion promissory note to Genesis to fill the balance sheet hole. In addition, DCG borrowed $527 million from Genesis Capital before May 2022, which is still outstanding.
Crypto lenders: a wipe out in the United States
There are few major crypto lenders left standing, particularly in the United States. Voyager and Celsius filed for bankruptcy following the failure of 3AC in May 2022, although arguably the Celsius trigger was not 3AC. BlockFi entered bankruptcy after the FTX collapse. And this month, it was announced that Bulgarian authorities had opened a major investigation into Nexo, which was also fined $45 million by the SEC yesterday. Under the SEC settlement, it agreed to stop selling unregistered securities to U.S. investors.
Update: some details regarding the creditors were added.