Crypto Firms Get Off to a Rough Start in 2023 with Outflows, Layoffs and a Lawsuit

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By Hannah Lang

(Reuters) The crypto industry’s woes continued on Thursday as plummeting filings, layoffs and a lawsuit added to the tumult of 2022, which was dominated by falling prices and high-profile bankruptcies. .

The fallout from the collapse of crypto exchange FTX and the criminal charges against its founder Sam Bankman-Fried weighed heavily on the sector this week. Among those affected were Genesis Global Capital, which laid off staff, and crypto-focused Silvergate Bank, which reported a sharp drop in deposits.

Bankman-Fried pleaded not guilty on Tuesday to eight counts, including wire fraud and money laundering conspiracy. The 30-year-old is accused of looting deposits from FTX clients to support his hedge fund Alameda Research, buy real estate and donate millions of dollars to political causes.

Another crypto entrepreneur, Alex Mashinsky, founder and former CEO of Celsius Network, also encountered a legal battle on Thursday. A new lawsuit filed by the New York Attorney General alleges that Mashinsky defrauded investors by covering up the failing health of his now bankrupt cryptocurrency lending platform.

While Mashinsky was CEO between 2021 and 2022, Celsius made roughly $1 billion in loans to Alameda Research, according to the lawsuit.

The civil lawsuit seeks to bar Mashinsky from doing business in New York and to award him damages for violating state laws.

This serves as a boost to other founders of entities like this, said Todd Phillips, founder of Phillips Policy Consulting LLC.

Meanwhile, Silvergate Capital Corp reported a sharp decline in crypto-related deposits in the fourth quarter on Thursday, as investors spooked by the collapse of FTX withdrew more than $8 billion, sending the bank’s shares down more. by 43%.

A U.S. attorney told a bankruptcy court on Wednesday that prosecutors seized U.S. bank accounts at Silvergate and Farmington State Bank affiliated with the Bahamas-based FTX business, known as FTX Digital Markets.

The accounts at Silvergate Bank and Farmington State Bank, which does business as Moonstone Bank, held about $143 million, according to court records.

Silvergate also said it would cut its workforce by 40%, or about 200 employees, to control costs as the industry downturn worsens. Genesis also plans to cut 30% of its workforce in a second round of layoffs in less than six months, according to a person familiar with the matter.

Genesis, which trades digital assets for financial institutions such as hedge funds and asset managers, announced in November that its crypto lending arm would stop making new loans and prevent customers from withdrawing funds, citing market turmoil caused by the failure of FTX.

The layoffs were first reported by The Wall Street Journal, which also said Genesis was considering filing for Chapter 11 bankruptcy. The company is working with investment bank Moelis & Co to assess its options, the report said. , citing people familiar with the matter.

Crypto exchange Gemini, which had a crypto lending product in partnership with Genesis, and other Genesis creditors campaigned for a solution to avoid a situation similar to FTX’s rapid slide into bankruptcy. .

Cameron Winklevoss, who founded Gemini with his twin brother, on Monday accused Barry Silbert, CEO of Genesis parent company Digital Currency Group, of bad faith stall tactics and asked him to commit to solving 900 million dollars worth of disputed client assets by January 8. .

(Reporting by Hannah Lang in Washington; Additional reporting by Jonathan Stempel in New York and Manya Saini, Niket Nishant and Anirban Chakroborti in Bengaluru; Editing by Lananh Nguyen and Matthew Lewis)

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