Crypto lender Genesis files for bankruptcy as digital currency woes worsen

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Cryptocurrency lending company Genesis is seeking Chapter 11 bankruptcy protection as falling prices and the collapse of FTX Trading continue to rock the industry.

Genesis filed for bankruptcy Thursday in the Southern District of New York. Genesis said its other subsidiaries related to derivatives and spot trading are not included in the filing and are continuing client trading operations. The company said it had more than $150 million in cash.

The Genesis bankruptcy further tarnishes the credibility of the crypto industry, which has been widely embraced during the coronavirus pandemic but is now coming under scrutiny as consumers question the security of their investments. Hopeful investors have dabbled in buying bitcoin, solana, ether and other coins over the past few years only to lose billions of dollars as crypto companies fell prey to hacks and scams, filed for bankruptcy, or blocked users from accessing their funds.

These risks are commonplace in the industry, which remains largely unregulated in the United States and in many markets around the world.

Dispute with Gemini

Bankruptcy court documents show the company’s lending unit owes more than $3 billion to its top 50 creditors. The biggest claim, Bloomberg reported, involves clients of Gemini, the crypto exchange run by twin Olympic rowers and disputed Facebook founders Tyler and Cameron Winklevoss.

Last week, the Securities and Exchange Commission sued Gemini and Genesis Global Capital, alleging that the two companies were selling unregistered securities through a popular program said to pay high interest on crypto deposits.

The SEC lawsuit against Gemini and Genesis is part of a broader crackdown on cryptocurrency by multiple US government agencies after crypto prices plummeted last year, primarily exposing retail investors to billions dollars of losses.

In a series of tweets this morning, Cameron Winklevoss said Gemini was preparing to take legal action against Genesis’ parent company, Digital Currency Group, and its CEO, Barry Silbert. “We are preparing to take direct legal action against Barry, DCG and others who share responsibility for the fraud that harmed over 340,000 Earn users and others duped by Genesis and its accomplices. “Winklevoss tweeted.

5/ We are preparing to take direct legal action against Barry, DCG and others who share responsibility for the fraud that harmed over 340,000 Earn users and others duped by Genesis and his accomplices.

— Cameron Winklevoss (@cameron) January 20, 2023 Restructuring plans

As part of its bankruptcy filing, Genesis is engaged “in a court-supervised restructuring process” that includes the creation of a trust that will distribute assets to creditors, the company said in a statement.

“While we have made significant progress in refining our business plans to address liquidity issues caused by recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, a legal restructuring presents the most effective path by which to preserve assets and create the best possible outcome for all Genesis stakeholders,” interim CEO Derar Islim, who took office in August, said in a statement.

FTX and Three Arrows Capital both filed for bankruptcy last year, along with Celsius Network and Voyager Digital. Genesis’ bankruptcy comes as the digital currency market is plunged into a so-called “crypto winter” – the industry’s version of a bear market.

The Associated Press contributed reporting.

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Christopher J. Brooks

Khristopher J. Brooks is a reporter for CBS MoneyWatch and covers business, consumer and financial stories ranging from economic inequality and housing issues to bankruptcies and sports affairs.

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