Crypto Lender Genesis Files for Bankruptcy in Latest Hit to Barry Silbert’s DCG Empire

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Barry Silbert, Founder and CEO, Digital Currency Group

David A Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection Thursday night in Manhattan federal court, the latest casualty in the industry contagion caused by the collapse of FTX and a devastating blow to a once-in-the-making business. the heart of the Barry Silbert Digital Currency Group.

The company listed more than 100,000 creditors in a “mega” bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion, according to bankruptcy documents.

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

“We look forward to advancing our dialogue with DCG and our creditor’s advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future,” said Genesis interim CEO, 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 a lawsuit against Genesis and its former partner, Gemini, for the unregistered offering and sale of securities.

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

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 have been preparing to take direct legal action against Barry, DCG and others,” he continued.

“Sunlight is the best disinfectant,” Winklevoss concluded.

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 puts Genesis alongside other downed crypto exchanges, including BlockFi, FTX, Celsius, and Voyager.

The FTX crash in November froze the market and prompted clients across the crypto landscape to seek withdrawals. The Wall Street Journal reported that, following FTX’s collapse, Genesis sought a billion-dollar emergency bailout, but found no interested parties. Parent company DCG, which has mounting debt to creditors 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 companies, but a series of bad bets were made last year severely damaged the lender and forced it to stop withdrawals on November 16.

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

3AC filed for bankruptcy in July amid the “crypto winter.” Genesis had loaned more than $2.3 billion in assets to 3AC, according to court documents. 3AC’s creditors have been fighting in court to recover even a small part 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 any knowledge of fraudulent activity within its network of companies, but remains unable to provide a substantive explanation for the multi-billion dollar hole. He was arrested in December and released on $250 million bail ahead of his trial, which begins in October.

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

Genesis’s financial spiral has exposed Silbert’s broader DCG empire. The parent company was forced to take over Genesis’ billion dollar liability stemming from the collapse of 3AC. In a subsequent letter to investors, Silbert disclosed an additional $575 million loan from Genesis to DCG for undisclosed investment purposes.

DCG pioneered going public trustsallowing investors to hold bitcoins and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Escrow the net asset value discount was widened significantly last year as confidence in the conglomerate waned.

This is a developing story. Please check for updates.

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