UPDATE 4: Genesis files for U.S. bankruptcy
(Adds Cameron Winklevoss’ tweets in paragraph 10 & 11, estimated creditors in paragraph 3)
Jan 20, 2019 (Reuters) – Genesis’ lending unit filed Thursday for bankruptcy protection in the United States. The filing was made by Genesis along with BlockFi and FTX, which were both swept aside by a market rout.
Genesis Global Capital was one of the biggest crypto lenders. It stopped customer redemptions on Nov. 16, after FTX shocked the financial world by its bankruptcy. This fueled concern about other companies going under. Digital Currency Group (DCG), a venture capital firm, owns the company.
Genesis’ lending division stated it had assets and liability in the range of $1billion to $10billion and that it had more 100,000 creditors as per its filing with U.S. Bankruptcy Court Southern District of New York.
Genesis Global Holdco (the parent group of Genesis Global Capital) also filed for bankruptcy protection.
Genesis Global Holdco stated that it will consider a possible sale or equitization transaction, in order to repay creditors. The company also claimed that it has $150 million in cash to assist with the restructuring.
It also stated that Genesis’ spot trading, derivatives, broker dealer, and custody businesses were not affected by the bankruptcy proceedings and would continue to trade clients.
Genesis’s bankruptcy filing represents the latest in a string of crypto failures and job cuts that has been triggered by plummeting prices.
Genesis was already in dispute with Gemini Trust Co. Gemini Trust Co is founded by Cameron Winklevoss (ex-Olympic rowers) and Tyler Winklevoss (cryptocurrency pioneers). Both firms are fighting over Earn, a cryptocurrency lending product that they jointly offered.
The Winklevoss twins claim that Genesis owed over $900 million to 340,000 Earn investors. Cameron Winklevoss demanded the resignation of Barry Silbert, chief executive of Digital Currency Group on Jan. 10.
Cameron Winklevoss, a tweeter, said that Silbert and Digital Currency Group had continued to refuse creditors fair terms just an hour after filing for bankruptcy.
Winklevoss tweeted that “unless Barry (Silbert), DCG come to their terms and make a fair deal to creditors, then we will be filing suit against Barry and DCG immediately.”
On Jan. 12, the U.S. Securities and Exchange Commission charged Genesis and Gemini with illegally selling securities through the Earn program. Tyler Winklevoss called this complaint disappointing.
Genesis was a broker of digital assets for financial institutions like asset managers and hedge funds. It had nearly $3 billion in total active loans as of the end-of-the third quarter. This is down from $11.1 million a year ago, Genesis’ website states.
According to Genesis’ website, Genesis issued $130.6 billion worth of crypto loans last year and traded $116.5 million in assets.
Three Arrows Capital, a crypto hedge fund based in Singapore, was the largest borrower. Alameda Research is a trading company that is closely linked to FTX, a source said to Reuters. Both are currently in bankruptcy proceedings.
Three Arrows’ Genesis debt was assumed by Digital Currency Group (DCG), its parent company. Three Arrows then filed a claim against DCG. DCG’s portfolio companies include Crypto asset manager Grayscale, and news service CoinDesk.
The boom in crypto lending, which was the de facto bank, was due to the rise of the cryptocurrency lenders. However, unlike traditional banks they do not have to maintain capital cushions. A lack of collateral caused some lenders and their customers to suffer large losses earlier this year. Reporting by Tom Hals, Wilmington, Delaware, and Akanksha Khushi. Editing by Lananh Nguyen and Clarence Fernandez.