Genesis creditors sue parent DCG and Barry Silbert
A consortium of Genesis creditors is suing Digital Currency Group (DCG) and its CEO Barry Silbert, alleging violations of the federal securities laws.
Plaintiffs claiming to represent the whole class of the digital asset manager’s debtors said the decision to put Genesis into bankruptcy does not insulate Barry from accountability.
The lawsuit, filed by law firm Silver Golub & Teitell (SGT), claims that Genesis business ran afoul of securities laws because the products being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.
The complaint alleges that the crypto lender and its CEO engaged in an unregistered securities offering in violation of securities laws by executing lending agreements involving securities. In those cases, securities registration, disclosure and other requirements apply unless qualifying for an exemption from registration under the federal securities laws.
“The scheme to defraud was carried out, according to the complaint, in order to induce prospective digital asset lenders to loan digital assets to Genesis Global Capital and to prevent existing lenders from redeeming their digital assets,” SGT lawyers noted.
The lawsuit seeks a declaration that Genesis committed securities fraud and scammed crypto lenders by making false and misleading statements. In addition, the action alleged that Silbert intentionally misrepresented the company’s financial condition, violating section 10(b) of the United States’ Securities Exchange Act.
The Genesis collapse may have impacted over 100,000 creditors in the U.S. alone, based on the firm’s reported numbers. The lender’s assets were worth $5.3 billion while its aggregate liabilities, including intercompany debts, were ranging from $1.2 billion to $11 billion as of November 30.
The lender, owned by venture capital firm Digital Currency Group (DCG), said it was seeking court protection to restructure, settle its debts and recover money for investors.
Genesis spent the past two months seeking at least $1 billion in fresh capital, including rumors over a potential investment from Binance, but the funding has apparently failed to materialize.
At the time, Genesis warned its existing investors that it may need to file for bankruptcy if its efforts fail. The company suffered in the fallout from FTX’s implosion after revealing that it had $175 million locked in a trading account.
Owing creditors at least $3.4 billion, Genesis had already halted most activity on its platform and froze customer redemptions on November 16, citing a liquidity crunch triggered by significant exposure to FTX.