Genesis exits New York after settlement with NY attorney general
Bankrupt crypto lender Genesis Global has reached a settlement in a lawsuit filed by New York Attorney General Letitia James, marking a step forward in its ongoing bankruptcy proceedings.
The lawsuit accused Genesis, along with its parent company Digital Currency Group (DCG) and the cryptocurrency firm Gemini Trust Co, of defrauding investors of over $1 billion.
The legal action centered around the Gemini Earn investment program, a collaboration between Genesis and its former partner Gemini. This program offered Gemini customers the opportunity to loan their cryptocurrency assets to Genesis in return for interest earnings.
Under the terms of the settlement agreement, which awaits approval from the U.S. Bankruptcy Court for the Southern District of New York, Genesis agreed to cease its business operations within New York State.
This agreement follows closely after Genesis resolved a separate lawsuit with the U.S. Securities Exchange Commission (SEC) related to the same Earn program. In this case, Genesis agreed to a $21 million fine, contingent upon the firm’s ability to fully reimburse its customers during the bankruptcy process.
Its sister company, Genesis Global Trading, also reached a settlement with the NYDFS, agreeing to pay an $8-million penalty and discontinue its operations in New York.
Genesis’s bankruptcy has had a terrible impact on the Gemini Earn program and has spawned a series of lawsuits, including one by Gemini against Digital Currency Group and its CEO Barry Silbert, alleging fraud. Conversely, Genesis has also sued DCG seeking repayment of loans exceeding $600 million.
Amidst this ongoing dispute, U.S. regulatory bodies have also stepped in. The SEC alleged that Genesis and Gemini were selling unregistered securities, and the New York Attorney General filed a lawsuit accusing DCG, Genesis, and Gemini of defrauding investors.
The court filing suggests that the market disturbances caused by events like the collapse of Terraform Labs and Three Arrows Capital led to Gemini making withdrawals from Genesis, contributing to a “run on the bank” scenario.
The legal battle between the two crypto companies has intensified following the collapse of FTX in November 2022, leading to a public feud involving the CEOs of both firms. The contention centers on the recovery of funds, with accusations flying back and forth over non-cooperation and threats of legal action.
Previously, Gemini had taken legal action against Genesis to access shares of the Grayscale Bitcoin Trust used as collateral to secure loans to Genesis through the Gemini Earn program. These shares are currently valued at roughly $1.6 billion.
