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Genesis Confident It Can Exit Bankruptcy as BlockFi Offloads Loans

2 mins
Updated by Ryan Boltman
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In Brief

  • Genesis creditors are cautiously optimistic that they will soon reach consensus with the lender to reimburse at least $3.4 billion in frozen customers.
  • Genesis lawyer Sean O'Neal expects the company to exit bankruptcy by mid-May 2023.
  • Another distressed lender BlockFi is reportedly selling some of its loan book as it looks to retain key lawyers amid its own bankruptcy hearing.
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Speaking at the company’s first bankruptcy hearing, Genesis Holdco LLC‘s lawyer Sean O’Neal said the crypto lender can exit bankruptcy by the second week of May 2023.

On Jan. 24, 2023, O’Neal said he expects Genesis to resolve creditor disputes by the end of the week without mediation.

Genesis and Creditor Lawyers Close to Consensus

Judge Sean Lane also approved Genesis’ request to pay employees and vendors and said it didn’t need to publish a creditor list.

The lender plans to auction off key assets and end bankruptcy by May 19, 2022. One lawyer representing a creditor group is optimistic that they will reach a consensus to address $1.5 billion in outstanding debt by the end of the week.

While cautiously optimistic, another lawyer representing Gemini and other creditors at the Genesis hearing admitted that more work needed to be done.

Genesis Global Capital paused customer withdrawals and loan originations on Nov. 16, 2022, citing liquidity issues, after major debtors defaulted on loans due to the crypto winter.

Bankrupt hedge fund Three Arrows Capital defaulted on a $2.4 billion loan from the lender’s subsidiary, Genesis Asia Pacific Pte. Ltd, after failed bets on rising cryptocurrencies, forced the hedge fund into liquidation. The lender later filed for Chapter 11 bankruptcy on Jan. 19, 2023. It reportedly owes its top 50 creditors, including Gemini’s Earn customers, a minimum of $3.4 billion.

The lender’s interim CEO Derar Islim said earlier this month that he anticipated a speedy bankruptcy process. The company laid off 30% of its workforce Jan. 5, 2023, to prevent bankruptcy.

Former Genesis MD Accused of Misrepresenting Company’s Financial Health

Gemini, co-founded by billionaire twins Cameron and Tyler Winklevoss, until recently, counted Genesis as a lending partner. Gemini collected an agent fee for helping customers of its Earn yield-bearing account accrue a 7% yield from the lending efforts of Genesis. Cameron Winklevoss recently penned two letters to executives of Genesis’ parent company, The Digital Currency Group, calling for action to restore Earn customer funds.

Gemini also accused former Genesis managing director Matt Ballensweig of allegedly misrepresenting Genesis’ financial health to Gemini in July 2022. 

Ballensweig, with two other former employees, Reed Werbitt and Martin Garcia, reportedly looked to raise $30 million for a new hedge fund Hunting Hill Digital shortly after Genesis paused withdrawals in mid-November. Ballensweig and Werbitt left Genesis in Sep. 2022 after a leadership shuffle following the collapse of Three Arrows Capital. The company’s former CEO, Michael Moro, had resigned a month earlier.

Genesis’ fellow lender BlockFi recently sought approval from a bankruptcy judge to offer substantial retention bonuses to prevent a mass employee exodus after the company filed for bankruptcy on Nov. 28, 2022.

Yesterday, Bloomberg reported that the lender is selling $160 million in loans collateralized by about 68,000 mining machines. BlockFi’s business has been hit hard by the collapse of the Bitcoin price in 2022, which put many Bitcoin miners in financial distress while trying to service loans.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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