DCG Sues Genesis for $1.1 Billion 2022 Bailout Repayment

Digital Currency Group (DCG) has filed a lawsuit against its former subsidiary, Genesis Global Capital LLC, seeking repayment of $1.1 billion in financial support provided during the 2022 cryptocurrency market crisis [2]. The legal action, submitted to the U.S. Bankruptcy Court for the Southern District of New York, asserts that the funds were intended to offset losses caused by the collapse of Three Arrows Capital (3AC), a major client of Genesis [2]. The hedge fund’s failure to meet a margin call in 2022 resulted in a $2.36 billion default, severely impacting Genesis’s financial position [2].

In response, DCG issued a promissory note to cover the shortfall, with the principal amount to decrease in proportion to any recoveries from 3AC’s collateral [2]. However, DCG now claims that Genesis recorded gains from that collateral exceeding the original $1.1 billion note and still owes the parent company more than $105 million, plus interest [2].

This case represents the latest development in an ongoing legal feud between the two entities. Earlier in 2024, Genesis’s Litigation Oversight Committee filed separate lawsuits against DCG, its CEO Barry Silbert, and other executives, accusing them of improper fund transfers during the 2022 market turmoil [2]. The suits allege that certain actions may have prioritized the interests of DCG over those of Genesis and its creditors.

Genesis, which had suspended lending operations following the collapses of TerraUSD and FTX in 2022, entered bankruptcy in 2023 [2]. The firm completed a restructuring in 2024 and is currently distributing approximately $4 billion in assets to creditors, with varying recovery rates depending on the cryptocurrency involved [2]. DCG, as an equity holder, is positioned last in the repayment hierarchy.

In a parallel legal move, Genesis has filed a $2.1 billion lawsuit against DCG to cover additional customer repayments [2]. The litigation reflects the deepening complexity of the relationship between the two companies and highlights the financial entanglements that have emerged from the crypto market’s dramatic downturn.

Source:

[2] Digital Currency Group Sues Genesis Over $1.1 Billion 2022

(https://www.benzinga.com/crypto/cryptocurrency/25/08/47162460/digital-currency-group-sues-genesis-over-1-1-billion-2022-bailout-amid-bankruptcy-dispute)