The shocks caused by the cryptocurrency crash and the FTX market crash continue. The latest victim was Genesis, a cryptocurrency firm recently accused of irregular practices by the United States Securities and Exchange Commission (SEC), which froze customer withdrawals last November. This Friday did well on the forecasts and declared bankruptcy. It is the last domino to fall in this sector.
Genesis has announced through a statement that several group companies specializing in the lending business are filing for US bankruptcy legislation to begin a debt restructuring process. Genesis affiliates engaged in derivatives, spot trading and custody businesses continue to operate, according to the company.
The company ensures it has proposed a roadmap to get out of the crisis, which includes setting up a fund that will distribute assets to creditors. The plan provides for a two-way process in seeking a sale or a capital increase (with the option to convert debt into stock). The company will begin a process to sell its assets and use the funds “to pay creditors fairly and equitably.” At the same time, a sale of the company or the acquisition of new capital is sought. If it fails, the creditors get ownership interests in the reorganized company.
All aspects of the restructuring process will be overseen by a special committee independent of the company’s Board of Directors. In any case, considering the situation the cryptocurrency market is in and the allegations the company is facing, the prospects for customers and creditors are not good.
Last week, the SEC indicted Genesis (and Gemini, the cryptocurrency exchange founded by the Winklevoss twins) for unregistered offering and selling of securities to retail investors through crypto asset lending program Gemini Earn. Genesis and Gemini looted billions of dollars worth of crypto assets from hundreds of thousands of investors, the SEC said. Genesis accepted cryptocurrency deposits from investors to whom it offered high returns, but problems began with the collapse of Bitcoin and other cryptocurrencies. Other companies with a similar business model, such as Celsius Network and Votager Digital, suspended payments in the middle of last year.
In November 2022, shortly after the bankruptcy of FTX, the exchange founded by Sam Bankman-Fried, Genesis announced that it would not allow investors in its Gemini Earn program to withdraw its crypto assets due to a lack of sufficient liquidity, to fulfill withdrawal requests according to the volatility of the market. At the time, Genesis had approximately $900 million in investor assets from 340,000 Gemini Earn investors, according to the SEC. Retail investors have not yet been able to withdraw their crypto assets.
In the documentation, which will be presented to the court that will oversee the bankruptcy, Genesis Global Capital, one of the companies, ensures that it has more than 100,000 creditors (the highest box you can tick the form) and a number of Assets and Liabilities has 1,000 and 10,000 million dollars. Two other group companies that have suspended payments have debts ranging from $100 million to $500 million. The company’s main creditor is Gemini, the Winklevoss twins’ company, with $765 million, which Genesis accuses of falsifying its accounts and withholding its funds. The list of the top 50 creditors is around $3,350 million.
Genesis now ensures it has more than $150 million in cash, liquidity it hopes will help it navigate the restructuring process. The company is a subsidiary of Digital Currency Group, the crypto-asset conglomerate founded by Barry Silbert in 2015.
“While we have made significant progress in refining our business plans to address liquidity issues caused by the recent extraordinary challenges in our industry, including the Three Arrows Capital default and the FTX bankruptcy, a court restructuring is most effective, to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islam, interim CEO of Genesis, who was appointed in August last year, in the statement. “We deeply appreciate the patience and cooperation of our customers appreciate while we work towards a just solution,” he added.
THE LAND of the morning
Wake up to Berna González Harbor’s analysis of the day
GET IT