Gemini sues Genesis for $1.6B over GBTC collateral used in Earn program.

Gemini Takes Legal Action Against Genesis Global Holdco Over Bitcoin Trust Shares

Cryptocurrency exchange Gemini has filed an adversary proceeding against bankrupt crypto lender Genesis Global Holdco in the Southern District of New York Bankruptcy Court. The lawsuit revolves around the fate of 62,086,586 shares of Grayscale Bitcoin Trust (GBTC), which were used as collateral to secure loans made by 232,000 Gemini users to Genesis through the Gemini Earn Program. Currently, the collateral is worth almost $1.6 billion.

According to the suit, Gemini has received $284.3 million from foreclosing on the collateral for the benefit of Earn users. However, Genesis has disputed the action, blocking Gemini from distributing the proceeds. Genesis has proposed using the initial value of the collateral, which was more than $800 million, to determine the Earn Users’ deficiency claim instead of the foreclosure value. By doing so, Genesis could free up hundreds of millions of dollars for distribution to other creditors.

The lawsuit also alleges that Genesis’ parent company, Digital Currency Group (DCG), transferred additional collateral to Genesis “for the sole purpose of immediate onward distribution to Gemini for the benefit of Earn Users.” However, Genesis is now proposing to use the collateral for other purposes, which Gemini argues against. Gemini claims that by recognizing the Earn Users’ rights to the Additional Collateral, more than $1 billion in digital assets wrongfully withheld by Genesis for nearly a year can be returned to the Earn Users.

Gemini Earn users make up 99% of Genesis creditors and their claims represent 28% of all claims by value, according to the suit. This legal action follows Genesis’ bankruptcy filing in January, which was accompanied by the suspension of withdrawals. Consequently, it affected the Gemini Earn program. In July, Gemini sued DCG and its CEO Barry Silbert for fraud in connection with the Earn program.

It is worth noting that Gemini and Genesis are also defendants in a case filed by the United States Securities and Exchange Commission (SEC) for offering unregistered securities through Gemini Earn. Additionally, New York Attorney General Letitia James sued Gemini, Genesis, and DCG, alleging that the Earn program defrauded its users, including 29,000 New Yorkers. James claimed that Gemini was aware of Genesis’ precarious financial condition.

So far, Genesis Global Holdco has not responded to inquiries regarding the matter. It is important to mention that Grayscale is also owned by DCG.

This legal battle between Gemini and Genesis highlights the complexities and risks associated with the cryptocurrency lending industry. As the case proceeds, market participants and users will be eagerly awaiting the court’s decision to determine the fate of the Grayscale Bitcoin Trust shares and the distribution of the collateral’s value.

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