Gemini, a prominent cryptocurrency exchange, has initiated legal proceedings against Genesis Global Holdco, a bankrupt crypto lender, in the Southern District of New York Bankruptcy Court.
The focal point of this legal battle is the fate of 62,086,586 shares of Grayscale Bitcoin Trust (GBTC), which were used as collateral to secure loans extended to Genesis by 232,000 users participating in the Gemini Earn Program. This collateral is currently valued at nearly $1.6 billion.
Gemini claims to have obtained $284.3 million by foreclosing on the collateral to benefit the Earn users. However, Genesis has contested this action, obstructing Gemini from disbursing the proceeds.
Furthermore, Genesis has proposed using the initial value of the collateral, which exceeded $800 million, to determine the deficiency claim of Earn Users rather than the foreclosure value.
By doing so, Genesis would potentially free up hundreds of millions of dollars for allocation to other creditors.
Gemini’s argument is rooted in the notion that they bore the market risk associated with the initial collateral for the benefit of Earn Users post-foreclosure, making it just for Earn Users to receive any gains arising from that risk.
The lawsuit also alleges that Digital Currency Group (DCG), Genesis’ parent company, transferred additional collateral to Genesis with the explicit purpose of immediate onward distribution to Gemini for the benefit of Earn Users.
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However, Genesis has put forth plans to utilize this collateral for different purposes, which Gemini contends is wrongful.
Gemini Earn users constitute a significant majority of Genesis’ creditors, accounting for 99% of them, and their claims represent 28% of the total claims by value.
Genesis had declared bankruptcy in January, following a suspension of withdrawals in November 2022 that had a direct impact on the Gemini Earn program.
In July, Gemini had previously filed a lawsuit against DCG and its CEO Barry Silbert, alleging fraud in connection with the Earn program.
These legal disputes compound the issues faced by both companies, as they are currently defendants in a case brought by the United States Securities and Exchange Commission, which asserts that Gemini Earn offered unregistered securities.
Furthermore, New York Attorney General Letitia James has sued Gemini, Genesis, and DCG, claiming that the Earn program defrauded its users, including 29,000 New Yorkers, and contending that Gemini was aware of Genesis’ precarious financial condition.
As of the time of publication, Genesis Global Holdco had not responded to inquiries from Cointelegraph. It’s worth noting that Grayscale is also owned by DCG.
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