Crypto exchange Gemini has filed a legal action against bankrupt crypto lender Genesis Global Holdco in the Southern District of New York Bankruptcy Court. The dispute revolves around 62,086,586 shares of Grayscale Bitcoin Trust (GBTC) that were used as collateral to secure loans made by 232,000 Gemini users to Genesis through the Gemini Earn Program. The value of this collateral is currently close to $1.6 billion.
Gemini claims to have 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 proposed using the initial value of the collateral, which was over $800 million, to determine the Earn Users’ deficiency claim instead of the foreclosure value. This proposal would free up hundreds of millions of dollars for distribution to other creditors. Gemini argues that only Earn users should benefit from any gain resulting from Gemini’s assumption of market risk related to the Initial Collateral.
In addition, Gemini alleges that Genesis’ parent company, Digital Currency Group (DCG), transferred additional collateral to Genesis with the specific purpose of distributing it to Gemini for the benefit of Earn users. However, Genesis is proposing to use the collateral for other purposes. Gemini insists that 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 enable the return of over $1 billion in digital assets that Genesis has withheld from Earn Users for nearly a year.
According to the filed suit, Gemini Earn users make up 99% of Genesis creditors, and their claims represent 28% of all claims by value. The dispute between Gemini and Genesis arises as a result of Genesis filing for bankruptcy in January and suspending withdrawals in November 2022, which affected the Gemini Earn program. Earlier this year, Gemini sued DCG and its CEO Barry Silbert for fraud in relation to the Earn program.
It is worth mentioning that Gemini and Genesis are also defendants in a case brought by the United States Securities and Exchange Commission (SEC). The SEC claims that Gemini Earn offered unregistered securities. Additionally, the New York Attorney General Letitia James sued Gemini, Genesis, and DCG, alleging that the Earn program defrauded its users, including 29,000 New Yorkers. James argued that Gemini was aware of Genesis’ precarious financial condition.
At the time of publication, Genesis Global Holdco had not responded to inquiries from Cointelegraph. Grayscale, the parent company of Gemini, is also owned by DCG.
Source: [Kroll Inc.](https://restructuring.ra.kroll.com/genesis/Home-DocketInfo), [Cointelegraph](https://cointelegraph.com/news/gemini-and-genesis-charged-by-sec-over-unregistered-securities), [Cointelegraph](https://cointelegraph.com/news/gemini-genesis-dgc-sued-by-new-york-attorney-general-for-allegedly-defrauding-investors)
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