Genesis fined $21 million to settle Gemini Earn lawsuit

abdelaziz Fathi

Genesis Global Holdco, a subsidiary of the Digital Currency Group and currently undergoing bankruptcy, has reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC).

According to a recent court filing in the U.S. Bankruptcy Court for the Southern District of New York, Genesis has agreed to pay $21 million to resolve the lawsuit brought up by the SEC a year ago.

This lawsuit relates to a lending program that involved both Genesis and Gemini Trust Company. The agency charged Genesis Global Capital and Gemini for the unregistered offer and sale of securities to retail investors through a crypto lending program.

The court filing describes the settlement as the outcome of comprehensive negotiations between Genesis Global Capital (GGC) and the SEC. This agreement is said to bring several benefits to the debtors’ estates, including resolving the civil action claim filed by the SEC in the Chapter 11 Cases. The settlement also should help eliminate the risks, expenses, and uncertainties linked to extended litigation against the SEC.

As per the court document, the $21 million settlement amount will be paid after the full settlement of all other allowed administrative expense, secured, priority, and general unsecured claims.

The news comes shortly after Genesis Global Trading has reached a settlement with the New York Department of Financial Services (NYDFS), agreeing to pay an $8-million penalty and cease its operations in New York. As part of the settlement, the U.S.-focused spot crypto trading business will surrender its BitLicense, which it has held since 2018.

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.

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