By Geoffrey Smith
Investing.com – Cryptocurrency lender Genesis has filed for Chapter 11 bankruptcy, ending two months of futile efforts to fill the holes in its balance sheet left by the collapse of hedge fund Three Equity Equity and FTX Exchange.
The lender and broker’s filing pointed to at least $3.8 billion in liabilities, well above the conservative estimate of $3 billion it had circulated before its demise.
The development is a step toward a solution for the hundreds of thousands of retail investors whose funds have been frozen in Genesis since withdrawals were suspended in November following the FTX crash. About 340,000 of those are clients of the investment platform Gemini, which is owned by Cameron and Tyler Winklevoss. Genesis’ bankruptcy filing indicates that Genesis owed them approximately $765 million.
It also sets the stage for a thorough examination of Genesis’ governance arrangements, which the Winklevoss twins have accused of being hollow by its owner – Barry Silbert’s Digital Currencies Group (DCG). The twins and Silbert have two of the largest holdings of crypto assets in the world, and at least one of them may have to be used to make Gemini a full-fledged customer.
Prior to the introduction, Gemini had been publicly feuding with Silbert over what he saw as a halt to Genesis’ debt restructuring efforts. At the same time, some Gemini clients filed a class action lawsuit seeking compensation from the Winklevoss twins. Filing for bankruptcy means both initiatives will be essentially on hold.
“Restructuring in court offers the most effective means of preserving assets and achieving the best possible outcome for all stakeholders of Genesis,” Genesis Acting CEO Dirar Islam said in a statement.
The Winklevoss twins expressed frustration that Silbert and DCG “continue to refuse to offer creditors a fair deal” but said, “The good news is that by seeking bankruptcy court protection, Genesis will be subject to judicial scrutiny and will be required to provide discovery of the machinations that have brought us to this point.” .
They added that they intended to file a lawsuit against Silbert and DCG “imminently”.
Analysts have noted that Chapter 11 weakens Gemini’s leverage over Genesis as it seeks to recover its clients’ money.
“This action stops the Winklevoss twins’ compensation request in its tracks,” Francis Coppola, a veteran financial commentator, said via social media. “Gemini’s lawsuit against Genesis will now be handled by bankruptcy court, and Gemini may not get all of its money back.”