Genesis Global Holdco LLC’s interim CEO Derar Islim assured creditors like Gemini that the firm’s bankruptcy will proceed “quickly and efficiently.”
Writing to investors shortly after Genesis filed for Chapter 11 bankruptcy in the U.S., Islim said in a letter seen by the Block, “Our goal is to move through the Chapter 11 process as quickly and efficiently as possible while reaching the best outcome and emerging well-positioned for the future.” Islim assumed leadership of the lending firm in August 2022 after the resignation of former CEO Michael Moro.
Genesis Owes Top 50 Creditors $3.6 Billion
Genesis filed for Chapter 11 bankruptcy on Jan. 20, 2023, after suffering a massive liquidity crunch after hedge fund Three Arrows Capital defaulted on a $2.4 billion loan. It suspended withdrawals and loan originations on Nov. 16, 2022.
According to the filing, the company has more than 100,000 creditors. It reportedly owes its top 50 unsecured creditors around $3.6 Billion.
Genesis owes Gemini Earn customers an estimated $900 million, Amsterdam-based exchange Bitvavo about $303 million, Moonalpha Financial Services $150 million, and Plutus Lending $30 million. Other claimants include VanEck’s New Finance Income Fund and crypto trading firm Cumberland. While Genesis filings pin Cumberland’s claim to about $18 million, the crypto trader claims that Genesis owes it about $46,000.
Before it filed for bankruptcy, Genesis transferred around $150 million to several central exchanges, including Binance, Kraken, and Coinbase, which could allow itself to operate while undergoing bankruptcy.
Who’s to Blame for Gemini Earn Fiasco?
Gemini co-founder Cameron Winklevoss has threatened legal action against the Genesis owner Digital Currency Group (DCG) and its CEO Barry Silbert if Gemini customers do not get fair treatment from the bankruptcy proceedings.
DCG hit back, calling his threat “another publicity stunt from Cameron Winklevoss to deflect blame from himself and Gemini.”
Genesis reportedly owes over 340,000 Gemini Earn customers about $900 million. Earn customers gave their assets to Genesis to generate yield. In its capacity as an agent, Gemini took up to a 4.29% cut of the returns.
According to Axios, Gemini confirmed in response to an SEC lawsuit that customers knew the risk of “TOTAL LOSS.”
However, the one Earn customer’s experience with Gemini’s customer service referred to FDIC insurance, allaying any illiquidity fears.
“All fiat currency held by Gemini to redeem your GUSD is held by our partner financial institutions in a secure account and is eligible for FDIC insurance,” Gemini’s customer service told Peter Chen, who invested around $18,000 in the account. GUSD is Gemini’s stablecoin, while FDIC insurance refers to Federal Deposit Insurance. FDIC insurance is a safety net that protects depositors against a bank-run scenario.
While its registration with the New York State Department of Financial Services compels it to keep a certain capital requirement, Gemini is not regulated like a bank. Hence, customers risked an illiquidity scenario when they deposited their money.
Smaller investors like Chen could wait a long time to receive their money. The $1.1 billion promissory note maturing in 2032 Silbert promised to help Genesis’s liquidity is not callable. A further $526 million that DCG must pay Genesis by May 2023 is also not guaranteed to restore Gemini customers any time soon.
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