Gemini sues Genesis over $1.6B worth of Grayscale Bitcoin Trust shares originally posted as collateral

Gemini Trust Co. filed suit against troubled integer plus lender Genesis Global Capital connected Oct. 27, seeking to recover $1.6 billion successful collateral for Gemini customers trapped erstwhile Genesis halted withdrawals successful November.

The suit filed successful bankruptcy tribunal alleges Genesis improperly withheld collateral that was expected to backstop loans Gemini users made done the exchange’s Earn program.

The collateral pledged nether the information statement consists of much than 30 cardinal shares of the Grayscale Bitcoin Trust (GBTC), which were kept successful an relationship held by Gemini for the payment of the lenders participating successful its Earn program.

This GBTC collateral was intended to unafraid Genesis’s obligations and liabilities nether the maestro indebtedness agreements governing the Earn loans. Gemini claims Genesis has prevented it from distributing the collateral proceeds to much than 230,000 Earn users.

The quality stems from a summertime meltdown successful crypto markets that forced Genesis and different large lending platforms to frost withdrawals. Genesis, which owes creditors implicit $3 billion, has disputed Gemini’s assertion connected the collateral shares.

Thursday’s suit intensifies a high-stakes conflict implicit however losses get distributed crossed Genesis creditors, the immense bulk of whom are Gemini customers. The result could importantly interaction the presumption of immoderate reorganization plan.

Gemini claims it acted arsenic an cause for the Earn users successful lending retired their crypto. It says it tried to support them by requiring Genesis to station collateral. Genesis, however, has challenged the validity of Gemini’s foreclosure connected immoderate of the shares.

Tangled web

The narration betwixt cryptocurrency speech Gemini and troubled integer plus lender Genesis is intertwined with their communal owner, Barry Silbert‘s Digital Currency Group (DCG). Gemini offered an Earn programme successful concern with Genesis, allowing customers to lend crypto to Genesis and gain interest.

However, erstwhile crypto markets crashed successful 2022, Genesis halted withdrawals connected Earn, leaving Gemini customers incapable to entree $900 cardinal successful funds. Gemini has since sued Genesis and DCG, alleging they misled investors astir Genesis’s shaky finances tied to failed hedge money Three Arrows Capital.

DCG has denied engagement successful Earn, but Gemini contends DCG knew of and hid Genesis’s insolvency.

The station Gemini sues Genesis implicit $1.6B worthy of Grayscale Bitcoin Trust shares primitively posted arsenic collateral appeared archetypal connected CryptoSlate.