Genesis Global Capital's $689M Legal Battle with Gemini Trust

Genesis Global Capital, a bankrupt crypto lender, has initiated legal action against Gemini Trust Company and participants in the Gemini Earn Program, aiming to recover what it claims as preferential transfers totalling around $689 million.

This lawsuit comes on the heels of the termination of an agreement permitting users to lend digital assets to Genesis via Geminis platform.

In the court filings, Genesis, a subsidiary of Digital Currency Group, alleges that Gemini executed significant withdrawals during a crucial 90-day preference period preceding Genesiss bankruptcy proceedings in January. These withdrawals are labelled “avoidable transfers” in the filing, contending they disadvantaged other creditors, as stated by Genesis.

Seeking recourse under the United States Bankruptcy Code, the lawsuit endeavours to place the defendants in line with other creditors of Genesis who did not benefit from these preferential transfers.

The legal feud between the two crypto entities has escalated since FTX's collapse in November 2022, sparking a very public dispute involving both CEOs. At the heart of the conflict lies the fund recovery issue, with accusations flying between the companies regarding non-cooperation and looming legal consequences.

Earlier, Gemini had taken legal steps against Genesis to access Grayscale Bitcoin Trust shares utilized as collateral for loans extended to Genesis through the Gemini Earn program, currently valued at about $1.6 billion.

Part of Genesiss bankruptcy proceedings, the lawsuit aims to assert its claim over the GBTC shares pledged as collateral. The argument posits that gaining control of these shares would fully safeguard and address the claims of all its Earn customers, who encountered frozen funds when Genesis suspended withdrawals last year.

Genesis's bankruptcy has severely impacted the Gemini Earn program, sparking a string of lawsuits, including Geminis suit against Digital Currency Group and its CEO Barry Silbert, alleging fraudulent activities. Conversely, Genesis has counter-sued DCG, seeking repayment of loans surpassing $600 million.

Amid this ongoing dispute, U.S. regulatory bodies have intervened. The SEC previously accused Genesis and Gemini of selling unregistered securities, while the New York Attorney General filed a lawsuit accusing DCG, Genesis, and Gemini of defrauding investors.

The court filing implies that market disturbances triggered by events like the collapse of Terraform Labs and Three Arrows Capital led to Gemini's withdrawals from Genesis, contributing to what is described as a “run on the bank” scenario. These actions are now scrutinized for potential preferential and avoidable outcomes, given Genesis's financial situation during that period.