Gemini sues Genesis over GBTC shares used as Earn collateral, now worth $1.6B
Cryptocurrency exchange Gemini filed an adversary proceeding against bankrupt crypto lender Genesis Global Holdco in the Southern District of New York Bankruptcy Court on Oct. 27. At issue is the fate of 62,086,586 shares of Grayscale Bitcoin Trust (GBTC). They were used as collateral to secure loans made by 232,000 Gemini users to Genesis through the Gemini Earn Program. That collateral is currently worth close to $1.6 billion.
According to the suit, Gemini has received $284.3 million from foreclosing on the collateral for the benefit of Earn users, but Genesis has disputed the action, preventing Gemini from distributing the proceeds.
Genesis has also proposed using the initial value of the collateral, which was more than $800 million, to determine the Earn Users’ deficiency claim rather than the foreclosure value. As the foreclosure value was greater than the initial value, Genesis would thus free up hundreds of millions of dollars for distribution to other creditors:
“But it was Gemini who bore the market risk related to the Initial Collateral for the benefit of Earn Users following the foreclosure; so it follows that only Earn Users are entitled to any gain resulting from Gemini taking on that risk.”
In addition, the suit alleges that Genesis’ parent company, Digital Currency Group (DCG), transferred additional collateral to Genesis “for the sole purpose of immediate onward distribution to Gemini for the benefit of Earn Users,” but Genesis is proposing to use the collateral for other purposes. Gemini argued:
“A determination giving effect to the terms of the Security Agreement, confirming Gemini’s proper foreclosure on the Initial Collateral, and recognizing the Earn Users’ rights to the Additional Collateral would facilitate the return of more than $1 billion in digital assets that Genesis has wrongfully withheld from Earn Users for nearly a year.”
Gemini Earn users comprise 99% of Genesis creditors, and their claims represent 28% of all claims by value, according to the suit.
Related: Court approves Genesis settlement of $175M to FTX, expunges billions in claims
Genesis filed for bankruptcy in January. It had suspended withdrawals in November 2022, which impacted the Gemini Earn program. Gemini sued DCG and its CEO Barry Silbert for fraud in connection with the Earn program in July.
Today, Gemini filed an Adversary Proceeding against Genesis in Bankruptcy Court seeking to recover $1.6 billion in value for the benefit of Earn Users. For the past 12 months, Genesis has been trying funnel this value away from Earn users to other creditors. With this value,…
— GeminiTrustCo (@GeminiTrustCo) October 27, 2023
The former partners are defendants in a case brought by the United States Securities and Exchange Commission claiming that Gemini Earn offered unregistered securities. New York Attorney General Letitia James sued Gemini, Genesis and DCG, claiming that the Earn program defrauded its users, who included 29,000 New Yorkers. James claimed that Gemini was aware that Genesis was in a risky financial condition.
Genesis Global Holdco did not respond to Cointelegraph inquiries by publication time. Grayscale is also owned by DCG.
Magazine: Deposit risk: What do crypto exchanges really do with your money?
According to the US Department of Justice, Wolf Capital’s co-founder has pleaded guilty to wire fraud conspiracy for luring 2,800 crypto investors into a Ponzi scheme.
Making Britain better off will be “at the forefront of the chancellor’s mind” during her visit to China, the Treasury has said amid controversy over the trip.
Rachel Reeves flew out on Friday after ignoring calls from opposition parties to cancel the long-planned venture because of market turmoil at home.
The past week has seen a drop in the pound and an increase in government borrowing costs, which has fuelled speculation of more spending cuts or tax rises.
The Tories have accused the chancellor of having “fled to China” rather than explain how she will fix the UK’s flatlining economy, while the Liberal Democrats say she should stay in Britain and announce a “plan B” to address market volatility.
However, Ms Reeves has rejected calls to cancel the visit, writing in The Times on Friday night that choosing not to engage with China is “no choice at all”.
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The chancellor will be accompanied by Bank of England governor Andrew Bailey and other senior executives.
She will meet with her counterpart, Vice Premier He Lifeng, in Beijing on Saturday to discuss financial services, trade and investment.
She will also “raise difficult issues”, including Chinese firms supporting Russia’s invasion of Ukraine and concerns over constraints on rights and freedoms in Hong Kong, the Treasury said.
But it did not mention whether Ms Reeves would raise the treatment of the Uyghur community, which Downing Street said Foreign Secretary David Lammy would do during his visit last year.
Britain’s Foreign Secretary David Lammy and Chinese Foreign Minister Wang Yi in Beijing. Pic: AP
On Friday, Culture Secretary Lisa Nandy defended the trip, telling Sky News that the climbing cost of government borrowing was a “global trend” that had affected many countries, “most notably the United States”.
“We are still on track to be the fastest growing economy, according to the OECD [Organisation for Economic Co-operation and Development] in Europe,” she told Anna Jones on Sky News Breakfast.
“China is the second-largest economy, and what China does has the biggest impact on people from Stockton to Sunderland, right across the UK, and it’s absolutely essential that we have a relationship with them.”
Read more – Ed Conway analysis: The chancellor’s gamble with China
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Nandy defends Reeves’ trip to China
However, former prime minister Boris Johnson said Ms Reeves had “been rumbled” and said she should “make her way to HR and collect her P45 – or stay in China”.
While in the country’s capital, Ms Reeves will also visit British bike brand Brompton’s flagship store, which relies heavily on exports to China, before heading to Shanghai for talks with representatives across British and Chinese businesses.
It is the first UK-China Economic and Financial Dialogue (EFD) since 2019, building on the Labour government’s plan for a “pragmatic” policy with the world’s second-largest economy.
Sir Keir Starmer was the first British prime minister to meet with China’s President Xi Jinping in six years at the G20 summit in Brazil last autumn.
Relations between the UK and China have become strained over the last decade as the Conservative government spoke out against human rights abuses and concerns grew over national security risks.
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How much do we trade with China?
Navigating this has proved tricky given China is the UK’s fourth largest single trading partner, with a trade relationship worth almost £113bn and exports to China supporting over 455,000 jobs in the UK in 2020, according to the government.
During the Tories’ 14 years in office, the approach varied dramatically from the “golden era” under David Cameron to hawkish aggression under Liz Truss, while Rishi Sunak vowed to be “robust” but resisted pressure from his own party to brand China a threat.
The Treasury said a stable relationship with China would support economic growth and that “making working people across Britain secure and better off is at the forefront of the chancellor’s mind”.
Ahead of her visit, Ms Reeves said: “By finding common ground on trade and investment, while being candid about our differences and upholding national security as the first duty of this government, we can build a long-term economic relationship with China that works in the national interest.”
The Bitcoin Act’s passage could eventually send BTC’s price past $1 million per coin, industry executives say.
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