Gemini Demands Control Over $1.6 Billion Worth of GBTC in Legal Battle with Genesis Global
The Gemini Exchange has filed a lawsuit against its former business partner, Genesis Global, over the custody of more than 60 million Grayscale Bitcoin Trust (GBTC) shares. The value of these shares, approximately $1.6 billion, is now being held as collateral for Gemini’s Earn program. The legal dispute arises from Genesis Global’s previous bankruptcy, which left Gemini struggling to meet withdrawal requests from its Earn customers.
The lawsuit, which aims to secure control over the GBTC shares, is a direct response to the complications caused by Genesis’s bankruptcy. Gemini is determined to safeguard the interests of its Earn customers who have been experiencing delays and difficulties in retrieving their assets. The official complaint states, “Genesis has repeatedly harmed Earn users, obstructing and delaying the asset withdrawal process. It is now time to address this issue so that Genesis can restructure its organization, and Gemini can return funds to its users.”
This legal battle comes just one week after the New York authorities levied accusations of fraud against Gemini, Genesis, and DCG, alleging that they deceived more than 230,000 investors out of more than $1 billion.
The Gemini Earn product, a cryptocurrency savings and lending platform, was created by the Gemini Exchange, with Genesis as a lending partner, to generate interest for customer deposits.
Genesis Global found itself in dire straits following a series of scandals involving Three Arrows Capital and FTX, ultimately declaring bankruptcy in January 2023. The company accumulated debts totaling $3.5 billion owed to 50 major creditors. Genesis suspended withdrawals and effectively froze the assets of Gemini Earn users from mid-November 2022 until the present.
In February 2023, Genesis, DCG, Gemini, and other creditor companies reached an initial bankruptcy agreement that ultimately fell apart. In July 2023, Gemini filed a lawsuit against Genesis, DCG, and Barry Silbert, the founder of Genesis, alleging fraud and misappropriation of $1.2 billion in assets trapped in Genesis. Last month, Genesis and DCG announced plans to return 70-90% of assets to Gemini Earn users.
In total, Genesis owes approximately $1.1 billion to Gemini Earn users. However, preliminary documents suggest that this group of creditors may benefit more from the collateral assets that Genesis had previously provided to Gemini. Specifically, Genesis had pledged 31 million GBTC shares as collateral, and with the recent surge in the value of these assets, they now constitute roughly 60% of the debt owed to Gemini Earn users.
In another twist in the story, both Genesis and Gemini vehemently opposed allegations from the U.S. Securities and Exchange Commission (SEC), which contended that the Earn program essentially involved trading in securities. In May 2023, they requested the court to dismiss the ongoing legal dispute with the SEC.
The legal battle between Gemini and Genesis Global, along with the ongoing SEC scrutiny, will undoubtedly have far-reaching consequences in the world of cryptocurrency and digital asset trading. As these events unfold, the fate of the $1.6 billion in GBTC shares hangs in the balance, with many investors and industry stakeholders eagerly awaiting the resolution of this complex and contentious situation.
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