Genesis Global Sues Gemini for $500M+ Transfers

Crypto lender Genesis Global Capital has filed a complaint against cryptocurrency exchange Gemini Trust to recover over half a billion dollars in preferential transfers that “flowed to Gemini, at their demand, in the months immediately preceding Genesis bankruptcy and at the nadir of the significant cryptocurrency market turmoil over one year ago.”

The complaint alleges that $689,302,000 was withdrawn within 90 days prior to the commencement of the Chapter 11 case. Genesis claims that Gemini benefitted at the expense of other creditors and seeks to “correct this unfairness.”

These funds could be considered as “preferential transfers”, which refers to the transfer of assets received from a debtor within a certain period before their bankruptcy filing. The beneficiaries of these may be legally obliged to return those assets to ensure fair distribution among all creditors.

The two companies, Genesis, owned by DCG, and privately-owned Gemini, have a long history, which deteriorated significantly after the FTX collapse. Currently, the relationship seems to consist of an endless whirlpool of lawsuits and arguments over asset ownership.

We previously Observed that Genesis Global Capital had suffered from the FTX collapse and that another DCG subsidiary, Grayscale, had also experienced serious issues. Genesis stopped redemptions for all clients in November last year, which forced Gemini to pause the redemption of the $900 million of client funds it had lent to Genesis to generate yields for its Gemini Earn accounts.

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Now terminated, Gemini Earn was an investment program offered to Gemini users who custodied their assets on Gemini’s cryptocurrency platform. The participants could choose to loan the digital assets they placed with Gemini to Genesis in return for a fee.

In January this year, Genesis Global and two subsidiaries voluntarily filed for bankruptcy and stopped offering trading services. Immediately before this, the U.S. Securities and Exchange Commission had charged both Genesis and Gemini for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.

In July, Gemini sued DCG, trying to recover the funds from its Earn program held by Genesis. Following this, Genesis also sued its parent company, claiming that DCG owed it over $600 million across four different loans. This September DCG proposed a new agreement plan for the creditors of Genesis, which offers almost full recovery of claims for Gemini Earn users without any contribution from Gemini.

Finally, last month, Gemini sued Genesis, demanding over 60 million GBTC shares, valued at $1.6 billion, that were earlier pledged as collateral to secure loans made by Gemini users to Genesis through the Gemini Earn program. Meanwhile, the New York Attorney General has filed a lawsuit against Gemini, Genesis and its affiliates, and DCG for defrauding more than 230,000 investors

Commenting on the latest lawsuit, Gemini said that Genesis’s counterclaims are “shameless, baseless attempts to avoid its obligations under the plain language of the agreements at issue.” The company denied Genesis’s allegations and promised to vigorously defend Earn users against these counterclaims.