Cryptocurrency lender Genesis files for Chapter 11 bankruptcy

FTX collapse in late 2022 piled pressure on Genesis, forcing it to stop redemptions in November, with the company booking losses linked to its exposure to failed crypto hedge fund Three Arrows Capital

Genesis Global Holdco and its lending units are involved in 'productive' discussions with its parent company DCG and creditors. Bloomberg
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Genesis Global Holdco (GGH) the parent company of cryptocurrency lending company Genesis Global Capital,has filed for bankruptcy protection in the US.

The company, Genesis Global Capital and its other lending subsidiary, Genesis Asia Pacific, filed voluntary petitions under chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the Southern District of New York, it said.

GGH said its executives and advisers have been engaged in continuing, productive discussions with its creditors and corporate parent Digital Currency Group to evaluate the most effective path to preserve assets and move the business forward.

DCG also owns which also owns CoinDesk, a cryptocurrency-focused media company.

“Genesis has now commenced a court-supervised restructuring process to further advance these discussions and reach a holistic solution for its lending business, which, if achieved, would provide an optimal outcome for Genesis clients and Gemini Earn users,” the company said.

Its other subsidiaries in the derivatives, spot trading and custody businesses, as well as Genesis Global Trading are not included in the filing and continue client trading operations.

Genesis Global Capital suspended withdrawals in November, soon after the collapse of Sam Bankman-Fried's cryptocurrency exchange FTX, where it held some of its funds.

FTX International and its trading house Alameda Research were independently profitable businesses in 2021, each making billions. Then Alameda lost about 80 per cent of the value of its assets over the course of 2022 due to a series of market crashes. FTX was also affected by Alameda’s decline.

Earlier this month, the US Securities and Exchange Commission filed charges against Genesis Global Capital over the unregistered offer and sale of securities to retail investors through its Gemini Earn cryptocurrency asset lending programme.

The SEC said Genesis raised billions of dollars’ worth of cryptocurrency assets from hundreds of thousands of investors through this unregistered offering.

In July, the $10 billion Singapore-based cryptocurrency hedge fund Three Arrows Capital collapsed and filed for bankruptcy protection.

This prompted Genesis Global Trading to file a $1.2 billion claim against the now insolvent Three Arrows Capital.

The Genesis lending unit said in its US court filing on Thursday that it had both assets and liabilities in the range of $1 billion to $10 billion.

As part of its Chapter 11 filing, Genesis said it has proposed a road map to an exit that calls for a framework for a global resolution of all claims through a trust that will distribute assets to creditors.

“The plan contemplates a dual track process in pursuit of a sale, capital raise and/or equitisation transaction that would enable the business to emerge under new ownership,” it said.

“The company will initiate a marketing and sale process to monetise GGH’s assets or otherwise raise capital, using the transaction proceeds to pay creditors fairly and equitably. If the marketing process does not result in a sale or capital raise, creditors will receive ownership interests in Reorganised GGH.”

The restructuring process will be overseen by an independent special board committee, the company said. Genesis Global Holdco said it had $150 million in cash to support the restructuring.

“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, interim chief executive of Genesis.

“We deeply appreciate our clients’ ongoing patience and partnership as we work towards an equitable solution,” said Mr Islim, who was appointed to the position in August 2022.

Moelis & Company is acting as financial adviser to the company while Cleary Gottlieb Steen & Hamilton is acting as legal counsel and Alvarez & Marsal is serving as restructuring adviser.

Updated: January 20, 2023, 8:26 AM
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