Crypto lender Genesis Trading files for bankruptcy protection

Crypto lender Genesis Trading files for bankruptcy protection

Barry Silbert, Founder and CEO, Digital Currency Group

David A Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection in Manhattan federal court late Thursday night, the latest casualty of the industry contagion caused by the collapse of FTX and a crippling blow to a company that was once at the heart of Barry Silbert’s digital Currency Group stood.

The company listed over 100,000 creditors in a “mega” filing with total liabilities ranging from $1.2 billion to $11 billion, bankruptcy filings show.

Three separate petitions were filed for Genesis’ holding companies. In a statement, the company noted that the companies were only involved in Genesis’ crypto lending business. The company’s derivatives and spot trading business will continue unhindered, as will Genesis Global Trading.

“We look forward to advancing our dialogue with DCG and our credit advisors as we seek to chart a path to maximize value and provide our company with the best opportunity to be well positioned for the future,” said Genesis interim CEO Derar Islam an explanation.

The filing followed months of speculation about whether Genesis would file for bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its former partner Gemini for the unregistered offering and sale of securities.

Genesis listed a $765.9 million loan payable by Gemini in Thursday’s bankruptcy filing. Other notable claims included a $78 million loan to be paid by Donut, a high-yield decentralized platform, and a VanEck fund with a $53.1 million loan to be paid.

Gemini co-founder Cameron Winklevoss first responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair deal.”

“We have prepared to take direct legal action against Barry, DCG and others,” he continued.

“Sunlight is the best disinfectant,” concluded Winklevoss.

Genesis is in negotiations with creditors represented by the law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter told CNBC. The bankruptcy places Genesis alongside other fallen crypto exchanges, including BlockFi, FTX, Celsius, and Voyager.

FTX’s collapse in November caused the market to freeze and prompted clients across the crypto landscape to request withdrawals. The Wall Street Journal reported that Genesis applied for a $1 billion emergency bailout following the FTX meltdown, but found no interested parties. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.

The crypto contagion

Genesis made loans to crypto hedge funds and over-the-counter firms, but there have been a number of bad bets made over the past year severely damaged the lender, forcing it to halt withdrawals on November 16.

The New York-based firm had provided crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund founded by Sam Bankman-Fried and closely associated with his FTX exchange.

3AC filed for bankruptcy in July amid the “crypto winter.” According to court documents, Genesis had loaned over $2.3 billion worth of assets to 3AC. 3AC creditors have fought in court to recover even a fraction of the billions of dollars the hedge fund once controlled.

Meanwhile, Alameda was an integral part of FTX’s eventual demise. Bankman-Fried has repeatedly denied knowing about fraudulent activity within its corporate network, but still cannot provide any substantial explanation for the billion-dollar hole. He was arrested in December and released on $250 million bail before his trial, which is scheduled to begin in October.

Genesis had a $2.5 billion exposure to Alameda, although that position was closed in August. Following FTX’s bankruptcy in November, Genesis said approximately $175 million worth of Genesis assets were “locked up” on FTX’s platform.

Genesis’ financial spiral has exposed Silbert’s broader DCG empire. The parent company was forced to assume Genesis’ $1 billion liability resulting from the collapse of 3AC. In a later letter to investors, Silbert announced an additional $575 million loan from Genesis to DCG for undisclosed investment purposes.

DCG pioneered the publicly traded space trustedallowing investors to hold Bitcoin and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Trust The discount to net asset value widened significantly last year as confidence in the conglomerate waned.

This is an evolving story. Please check back for updates.