Crypto lender Genesis Trading files for bankruptcy protection

Barry Silbert, Founder and CEO, Digital Currency Group

David A Grogan | CNBC

Crypto lender Genesis filed for Chapter 11 bankruptcy protection late Thursday night in Manhattan federal court, the latest casualty in the industry contagion caused by the collapse of FTX and a crippling blow to a business that was once at the heart of Barry Silbert̵[ads1]7;s Digital Currency Group.

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

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

“We look forward to furthering our dialogue with DCG and our creditor advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to appear well-positioned for the future,” Genesis interim chief executive Derar Islim said 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 suit against Genesis and its former partner, Gemini, over the 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 a VanEck fund, with a $53.1 million loan.

Gemini co-founder Cameron Winklevoss first responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair deal.”

“We have prepared 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 tell CNBC. The bankruptcy puts Genesis alongside other fallen crypto exchanges, including BlockFi, FTX, Celsius and Voyager.

FTX’s collapse in November put a freeze on the market and sent customers across the crypto landscape scrambling for withdrawals. The Wall Street Journal reported that, following FTX’s meltdown, Genesis had sought a $1 billion emergency bailout but found no interested parties. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.

Crypto infection

Genesis made loans to crypto hedge funds and over-the-counter firms, 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 extended 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 in the middle of the “crypto winter”. Genesis had loaned assets worth more than $2.3 billion to 3AC, according to court documents. 3AC creditors have been fighting in court to get back even a sliver of the billions of dollars the hedge fund once controlled.

Meanwhile, Alameda was integral to FTX’s eventual demise. Bankman-Fried has repeatedly denied knowledge of fraudulent activity within its network of companies, but remains unable to provide a substantial explanation for the multibillion-dollar hole. He was arrested in December and has been released on a $250 million bond ahead of his trial, which is set to begin in October.

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

Genesis’ financial spiral has exposed Silbert’s wider DCG empire. The parent company was forced to assume Genesis’ $1 billion liability stemming from 3AC’s collapse. In a later letter to investors, Silbert disclosed an additional $575 million loan from Genesis to DCG for undisclosed investment purposes.

DCG pioneered going public chairsallowing investors to hold bitcoin and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Trust discount to net asset value increased significantly last year as confidence in the conglomerate waned.

This is a developing story. Please check back for updates.

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