Barry Silbert, Founder and CEO, Digital Currency Group
David A Grogan | CNBC
Crypto lender Genesis filed for Chapter 11 bankruptcy protection late Thursday in Manhattan federal court, the latest casualty in the industry contagion caused by the FTX collapse and a crippling blow to the business that was once at the heart of Barry Silbert’s Digital Currency Group.
The company listed more than 100,000 creditors in the “mega” bankruptcy filing, with total liabilities ranging from $1.2 billion to $11 billion, according to bankruptcy filings.
Three separate petitions were filed on behalf of the Genesis holding companies. In a statement, the company noted that the companies were only involved in Genesis’ cryptocurrency lending business. The company’s derivatives and spot trading will continue unhindered, as will Genesis Global Trading.
“We look forward to progressing our dialogue with DCG and our lender advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to demonstrate that it is well positioned for the future,” said interim CEO Genesis Derar Islam in a statement.
The filing follows months of speculation about whether Genesis would enter bankruptcy protection and just days after the Securities and Exchange Commission filed charges against Genesis and its former partner Gemini over an unregistered offering and sale of securities.
Genesis listed a $765.9 million loan due from Gemini in Thursday’s bankruptcy filing. Other significant claims included a $78 million loan due from Donut, a high-yield decentralized platform, and the VanEck Fund with a $53.1 million loan due.
Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair deal.”
“We were preparing to take direct legal action against Barry, DCG and others,” he continued.
“Sunlight is the best disinfectant,” Winklevoss concluded.
Genesis is negotiating with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter told CNBC. The bankruptcy puts Genesis alongside other failed crypto exchanges including BlockFi, FTX, Celsius and Voyager.
The collapse of FTX in November caused a market freeze and sent customers across the crypto landscape scrambling for withdrawals. The Wall Street Journal reported that after FTX’s collapse, Genesis sought a $1 billion emergency bailout but found no interested parties. The parent company of DCG, which owes more than $3 billion in mounting debt to creditors, suspended dividends this week, CoinDesk reported.
Genesis has made loans to crypto hedge funds and OTC companies, but a string of bad bets closed last year severely damaged the lender and forced it to halt withdrawals on November 16.
The New York-based firm made crypto loans to Three Arrows Capital (3AC) and Alameda Research, a hedge fund founded by Sam Bankman-Fried and closely linked to his FTX exchange.
3AC filed for bankruptcy in July in the midst of the “cryptogym.” Genesis loaned 3AC assets worth more than $2.3 billion, according to court filings. Creditors of 3AC are fighting in court to recover even a fraction of the billions of dollars the hedge fund once controlled.
Meanwhile, Alameda was integral to the eventual demise of FTX. Bankman-Fried has repeatedly denied knowing about fraudulent activity in his network of companies, but remains unable to provide a substantial explanation for the multibillion-dollar hole. He was arrested in December and is out on $250 million bail pending a trial 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 the FTX platform.
Genesis’ financial spiral exposed Silbert’s wider DCG empire. The parent company was forced to assume Genesis’ $1 billion liability stemming from the collapse of 3AC. In a later letter to investors, Silbert disclosed an additional $575 million loan from Genesis DCG for undisclosed investment purposes.
DCG pioneered the publicly traded trustallowing investors to hold Bitcoin and other currencies in their portfolio without direct exposure. Bitcoin Trust in Grayscale the discount to net asset value widened significantly last year as confidence in the conglomerate waned.
This is a developing story. Please check for updates.
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