- Gemini, a cryptocurrency exchange, is suing Genesis Global for 60 million Grayscale Bitcoin Trust (GBTC) shares linked to its Earn program, worth around $1.6 billion.
- The lawsuit aims to recover the GBTC shares and reimburse its Earn customers, who experienced difficulties after Genesis froze withdrawals last year.
- The lawsuit alleges that Genesis intentionally caused harm to Earn users and delayed their digital asset recovery.
Gemini, a well-known cryptocurrency exchange, has taken legal action against its former partner, Genesis Global, concerning a substantial sum of 60 million Grayscale Bitcoin Trust (GBTC) shares. These shares were linked to the Gemini Earn program and were used as collateral for loans extended to Genesis by 232,000 Gemini users.
The total value of this collateral today stands at approximately $1.6 billion. Gemini’s lawsuit has a clear objective – to gain control of these GBTC shares to ensure the reimbursement of its Earn customers. These customers had experienced significant difficulties when Genesis froze withdrawals last year.
The lawsuit alleges that Genesis intentionally caused harm to Earn users and delayed the recovery of their digital assets. It emphasizes the importance of resolving these issues not only for the sake of Genesis’ reorganization plan but also to enable Gemini to distribute the collateral proceeds to the affected customers.
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Gemini has already received $284.3 million from foreclosing on the collateral for the benefit of Earn users. However, Genesis disputes this action, preventing the exchange from distributing these proceeds. Genesis has proposed an alternative approach, suggesting that the initial value of the collateral, which exceeded $800 million, should be used to determine Earn Users’ deficiency claims instead of the foreclosure value. This approach would potentially free up hundreds of millions of dollars for distribution to other creditors.
Furthermore, the lawsuit alleges that Genesis’ parent company, Digital Currency Group (DCG), transferred additional collateral to Genesis with the sole purpose of immediate distribution to Gemini for the benefit of Earn Users. However, Genesis is considering using this collateral for other purposes.
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Gemini Earn users make up a significant portion of Genesis’ creditors, accounting for 99% of them, and their claims represent 28% of the total claims in terms of value, according to the lawsuit.
The backdrop to this legal dispute involves challenges faced by both Gemini and Genesis in 2022. The collapse of the Three Arrows Capital crypto hedge fund and FTX led to Genesis filing for bankruptcy in January. In September, Genesis and DCG jointly proposed a plan to compensate Gemini Earn customers, with the aim of making them “nearly whole.” Additionally, both parties are in sync in opposing the U.S. Securities and Exchange Commission’s (SEC) allegations that the Earn program functioned as an unregistered security. They seek to have the SEC lawsuit filed against the program in May dismissed.