Genesis Files for Bankruptcy as it Seeks Protection From its Creditors – Which DCG Unit is Next to Fail?

Genesis Files for Bankruptcy as it Seeks Protection From its Creditors – Which DCG Unit is Next to Fail?
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After months of struggling, crypto lending and trading firm Genesis has filed for bankruptcy – but it’s not the end of its troubles.

Genesis, a unit of the Digital Currency Group (DCG), said in a press release that Genesis Global Holdco, LLC and two of its lending business subsidiaries, Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd., filed voluntary petitions under Chapter 11 on Thursday in the Southern District of New York, USA. 

Genesis’s other subsidiaries and other units that are involved in derivatives and spot trading as well as custody businesses are not part of the bankruptcy filing. These will continue operating. 

The announcement said that,

“Genesis has proposed a roadmap to an exit including a Chapter 11 plan (the “plan”) that calls for a framework for a global resolution of all claims through, and the creation of, a trust that will distribute assets to creditors. The plan contemplates a dual track process in pursuit of a sale, capital raise and/or equitization transaction that would enable the business to emerge under new ownership.”

It will start a process of marketing and sale to monetize Genesis Global Holdco, it said, and it will start repaying the creditors. If there is no sale or capital raised, creditors will receive ownership interests in a reorganized Genesis Global Holdco.

Per  Bloomberg,

“Genesis Global Capital listed the same range, $1 billion to $10 billion, for both assets and liabilities as well as over 100,000 creditors — the top 50 unsecured claims amount to about $3.4 billion.”

The company also plans to use $150 million of cash to fund the company in bankruptcy. It is still allowed by Chapter 11 to continue operating as it’s trying to repay creditors.

There have been reports about Genesis potentially getting ready to declare bankruptcy for days now. It was feeling heavy pressure of insolvency for weeks, following the credit crisis that hit the crypto industry. On January 18, as reported, it was suggested by people familiar with the discussions between Genesis and its creditors that bankruptcy could be declared as soon as this week – and they were right. 

Just days before that, it was revealed that Genesis owed over $3 billion to creditors – including $900 million to Gemini customers and more than $301 million to the users of the Dutch crypto exchange Bitvavo – pressing the crypto conglomerate DCG to consider selling assets in its large venture portfolio to raise money. 

As a reminder, in the wake of FTX’s collapse, Genesis announced that it was suspending redemptions and new loan originations in mid-November last year, saying that the “abnormal withdrawal requests” exceeded its “current liquidity.”

It was then revealed that Genesis had sought an emergency loan of $1bn before closing redemptions for clients.

Redemptions and loan originations at Genesis’s lending operation are still suspended and, per Bloomberg, claims will be handled in bankruptcy court. 

Genesis said in the announcement that the restructuring process will be led by an “independent special committee.”

Is a lawsuit imminent? 

Genesis is already in the middle of a dispute with major crypto exchange Gemini, founded by Cameron and Tyler Winklevoss.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn program investors, calling for the removal of Barry Silbert as the chief executive of Digital Currency Group. 

Per Genesis’ bankruptcy announcement,

“Genesis has now commenced a court-supervised restructuring process to further advance these discussions and reach a holistic solution for its lending business, which, if achieved, would provide an optimal outcome for Genesis clients and Gemini Earn users.”

Soon after the bankruptcy filing, however, Cameron Winklevoss tweeted that Silbert and DCG refuse to offer creditors a fair deal, adding:

“Unless Barry [Silbert] and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently.”

He added that bankruptcy court provides “a much-needed forum” for Genesis, DCG, and Silbert to provide explanations they owe creditors. 

A crumbling empire?

Genesis is owned by Digital Currency Group, a venture capital company focusing on the digital currency market. It lists more than 160 companies in its portfolio on its website, of which it has acquired 28. CoinDesk, Grayscale, and Genesis are among the biggest of them.

DCG said in a letter to shareholders just three days ago that it was suspending quarterly dividends to preserve cash, as the group focuses on “strengthening our balance sheet by reducing operating expenses and preserving liquidity.”

Earlier this month, the US Securities and Exchange Commission (SEC) brought charges against the Gemini exchange and Genesis “for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.” The regulator alleged that through this unregistered offering, the two companies raised “billions of dollars” worth of crypto assets from “hundreds of thousands of investors.” 

Genesis and Gemini launched the Gemini Earn program to retail investors in February 2021, where Gemini deducted an agent fee from the returns Genesis paid to Gemini Earn investors. In response, the exchange’s co-founder Tyler Winklevoss called the SEC’s actions “counterproductive” and claimed that Gemini had been in discussions with the SEC over the Earn program for months.

Then, on January 19, it was reported that crypto news website CoinDesk tapped advisors at Lazard, a financial advisory and asset management firm, seeking to sell a part or all of its business. “My goal in hiring Lazard is to explore various options to attract growth capital to the CoinDesk business, which may include a partial or full sale,” said CoinDesk CEO Kevin Worth.

This came as yet another indication that entrepreneur Barry Silbert’s crypto empire might be in serious trouble. 

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