The Southern District of New York Bankruptcy Court received an adversary proceeding filed by cryptocurrency exchange Gemini on October 27 against bankrupt cryptocurrency lender Genesis Global Holdco.62,086,586 shares of Grayscale Bitcoin Trust (GBTC) are at stake.232,000 Gemini users loaned money to Genesis via the Gemini Earn Program, using them as collateral.It is currently estimated that the collateral is worth nearly $1.6 billion.As per the lawsuit, Gemini obtained $284.3 million by way of collateral foreclosure, which it then distributed to Earn users. However, Genesis has challenged the action, thereby obstructing Gemini’s distribution of the income.
Genesis has also suggested that the Earn Users’ deficiency claim be determined by using the initial value of the collateral—more than $800 million—instead of the foreclosure value.Because the value of the foreclosure exceeded its initial estimate, Genesis would be able to release hundreds of millions of dollars to other creditors. “But it was Gemini who bore the market risk related to the Initial Collateral for the benefit of Earn Users following the foreclosure; so it follows that only Earn Users are entitled to any gain resulting from Gemini taking on that risk.”
Furthermore, Genesis is requesting to use the collateral for other purposes, despite the lawsuit alleging that Digital Currency Group (DCG), the parent company of Genesis, transferred additional collateral to Genesis “for the sole purpose of immediate onward distribution to Gemini for the benefit of Earn Users.” Gemini contended.“A determination giving effect to the terms of the Security Agreement, confirming Gemini’s proper foreclosure on the Initial Collateral, and recognizing the Earn Users’ rights to the Additional Collateral would facilitate the return of more than $1 billion in digital assets that Genesis has wrongfully withheld from Earn Users for nearly a year.”
According to the lawsuit, 99% of Genesis creditors are Gemini Earn users, and their claims make up 28% of all claims in terms of value.
In January, Genesis declared bankruptcy.In November 2022, withdrawals were halted, which had an effect on the Gemini Earn program.In July, Gemini filed a lawsuit alleging fraud against DCG and its CEO, Barry Silbert, regarding the Earn program.
In a lawsuit filed by the US Securities and Exchange Commission, the ex-partners are accused of offering unregistered securities through Gemini Earn.29,000 New Yorkers were among the users of the Earn program, according to New York Attorney General Letitia James’ lawsuit against Gemini, Genesis, and DCG.According to James, Gemini knew that Genesis was in a precarious financial situation.