Crypto lender Genesis files for bankruptcy protection

Crypto lender Genesis Global Capital filed for Chapter 11 bankruptcy in New York early Friday morning, marking the latest company in the industry to file for bankruptcy as fallout from the crypto price crash last year continue to reverberate through the markets.

The filing estimates the company has between $1 billion and $10 billion in assets and between $1 billion and $10 billion in liabilities, with more than 100,000 estimated creditors.

The Chapter 11 filing is a long time coming for Genesis, a wholly owned subsidiary of the Digital Currency Group (DCG), which suffered significant losses beginning in June last year and ultimately could no longer operate after the collapse of FTX crypto exchange.

The Genesis logo displayed on a phone screen is visible through broken glass in this illustration photo taken in Krakow, Poland on December 1, 2022. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

Launched in 2013, Genesis aimed to be Wall Street’s first all-in-one prime broker for digital assets.

The company launched its over-the-counter lending business in March 2018. By the fourth trimester that year, the loan office issued $500 million in loans for the period and $1.1 billion in total.

Exactly three years later, at the height of crypto mania, the loan office loan originations exploded at $50 billion for the quarter and $131 billion for all of 2021.

By June last year, that mania had started to dissipate, with the total crypto market value more than halving within weeks after leading crypto hedge fund – and Genesis borrower – Three Arrows Capital defaulted on $1.2 billion borrowed from Genesis.

In mid-August, Michael Moros, then CEO of Genesis, resigned as the company laid off 20% of its staff as part of a reorganization was partly intended to review its risk management practices.

Three months later, Genesis has suspended loan repayments and disbursementswith new interim CEO Derar Islam saying that “abnormal withdrawal requests” following the collapse of FTX had “exceeded our current liquidity”.

The shutdown forced crypto exchange Gemini to to suspend its own loan program, Earn, in which Genesis has partnered. Some 340,000 Gemini Earn customers are now Genesis creditors.

Despite its efforts to attract additional outside capital, Genesis was unlucky. Genesis has laid off 30% of its staff on January 5 of this year. Shortly thereafter, DCG closed its new wealth management division, HQ, and more recently suspended its dividend to shareholders.

In the first two weeks of January, Gemini co-founder and chairman Cameron Winklevoss refocused the company’s issues with Genesis on its parent company, DCG.

In of them open letters, Winklevoss claimed DCG CEO Barry Silbert had engaged in “bad faith stall tactics”, and later said the executive and others had misled Gemini by disclosing details about the financial health of Genesis. Winklevoss also called on Silbert to step down as CEO of DCG.

In response, Silbert sent a letter to DCG shareholders, which said, among other things: “It’s been hard to question my integrity and good intentions after spending a decade pouring everything into this business..”

Genesis has retained the services of New York-based legal and financial firms Cleary Gottlieb Steen & Hamilton, Alvarez & Marsal and Moelis. Kroll will act as administrator of the restructuring.

Along with Genesis Global Capital LLC, the filing includes subsidiaries Genesis Asia Pacific Pte. Ltd and Genesis Global Holdco.

The first two companies are “wholly owned by Genesis Global Holdco, LLC” and have estimated assets and liabilities of between $100 million and $500 million, the filing said. Genesis Global Holdco is 100% owned by Digital Currency Group.

Genesis owes over $3.4 billion to its 500 major creditors, which includes loans payable to VanEck’s New Finance Income Fund ($53 million), DCG ($37.9 million), Caramila Capital Management ($21 .5 million), Los Angeles-based Big Time Studios ($20 million). ), crypto trading company Cumberland ($18.7 million), as well as the Stellar Network’s Development Foundation ($13 million).

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