In recent Grayscale News, a legal dispute has erupted between cryptocurrency exchange Gemini and Digital Currency Group’s (DCG) now-bankrupt digital asset lender Genesis Global. The disagreement centers around the ownership of an astounding $1.6 billion worth of Grayscale Bitcoin Trust (GBTC) shares.
On October 27, Gemini filed a $1.6 billion lawsuit against the Genesis in the Southern District of New York Bankruptcy Court, seeking to recover over 62 million Grayscale Bitcoin Trust shares. The exchange claims that Genesis purportedly committed to using these shares as collateral to secure loans issued through Gemini’s Earn Program.
This program, introduced in 2021, offered high-yield interest-bearing accounts to its users and was terminated in January. Gemini said in its filing that the current value of the collateral significantly exceeds the claims of all Earn Users, stating:
“Today, the collateral is worth nearly $1.6 billion, an amount that would completely secure and satisfy the claims of every single Earn User.”
Notably, this all started in the summer of last year, when Gemini insisted that Genesis should guarantee the security of all loans taken by 232,000 Earn Users. In response, Genesis pledged 62 million shares of Grayscale Bitcoin Trust as collateral to secure these loans. These shares, which are now valued at nearly $1.6 billion, were intended to fully cover the claims of each Earn Program user.
However, in January, Genesis faced financial challenges and filed for bankruptcy, citing a series of bad investments, including those involving FTX and Three Arrows Capital.
As a result, Gemini found itself under serious regulatory scrutiny and legal pressure after facing lawsuits from investors who were unable to access their funds from the Earn Program.
Interestingly, on January 12, the United States Securities and Exchange Commission (SEC) charged Genesis and Gemini for “the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.”
More on Troubled Genesis and Grayscale News
It is important to note that on January 20, Gemini co-founder Cameron Winklevoss posted an open letter to DCG and its CEO Barry Silbert. He stated that they executed a ‘‘fraud that has caused harm to the 340,000 plus Earn users and others duped by Genesis and its accomplices.’’ He warned DCG of a lawsuit if it did not make a fair offer to Gemini’s creditors.
Notably, venture capital firm DCG has five subsidiaries, including Genesis and digital currency asset manager Grayscale.
In the recent filing, Gemini claimed that it has only received $284.3 million from foreclosing on the collateral. It stated that DCG, Genesis, and Grayscale are contemplating distributing the second tranche of collateral, which is worth over $800 million. Gemini believes that Genesis’ attitude is part of an attempt to deny users access to millions in post-foreclosure appreciation. It stated:
“If Genesis can successfully challenge Gemini’s foreclosure, then, in essence, Earn Users will be forced to share the appreciation of hundreds of millions of dollars, even though Genesis transferred the collateral to Gemini for the Earn Users’ sole benefit and Gemini foreclosed on the collateral to protect the Earn Users’ interests.”
Interestingly, the recent filing came just a week after New York Attorney General Letitia James filed a civil lawsuit against Gemini, Genesis, and DCG on November 19. He accused the three of defrauding more than 230,000 investors of over $1 billion.
