DCG Sues Genesis for $105M from $1.1B Post-3AC Note

DCG has initiated legal action against its former subsidiary Genesis Global Capital over a $1.1 billion promissory note issued in 2022 in response to the collapse of Three Arrows Capital (3AC). The lawsuit, filed in U.S. Bankruptcy Court, argues that Genesis retained excess collateral gains beyond the initial financial shortfall and seeks the return of approximately $105 million of these proceeds [3]. CEO Barry Silbert stated the note was intended to stabilize Genesis’s balance sheet and protect account holders during a period of market instability [7].

In response, Genesis has filed a counter-suit, seeking $3.1 billion in damages and accusing DCG of fraudulent asset transfers and mismanagement during the insolvency process. The subsidiary claims it requires additional capital to meet obligations to customers and is challenging DCG’s control over internal asset distributions [6]. The total claims now exceed $4 billion as both parties seek to assert control over a vast pool of assets [3].

The legal dispute highlights broader systemic risks in the cryptocurrency market, particularly regarding intra-group lending and how collateral gains are treated during insolvency proceedings [4]. Legal experts note the case may establish precedents for future similar scenarios. The case also reflects growing concerns over transparency and governance in crypto firms, particularly following high-profile collapses like FTX and TerraUSD [7]. The Genesis Litigation Oversight Committee has also raised concerns about financial mismanagement in its filings [7].

The litigation has significant implications for market participants, particularly those tied to Bitcoin and Ethereum. Grayscale’s Bitcoin Trust (GBTC) and other assets linked to Genesis’s lending activities are central to the dispute. Genesis reportedly generated $2.8 billion in profits from the 3AC situation, despite a $1.1 billion loss, fueling concerns over market trust and operational integrity [3]. The dispute continues to impact investor sentiment, echoing earlier market disruptions following the 3AC and FTX collapses [7].

The outcome of the litigation could shape the future of institutional crypto lending, influencing regulatory approaches during periods of market volatility [4]. The handling of promissory notes and internal financial operations in insolvency scenarios may become a focal point for regulators and market participants [7].

Source:

[1] Digital Currency Group Sues Subsidiaries Over $1.1B (https://cointelegraph.com/news/digital-currency-group-lawsuit-genesis-promissory-note)

[2] Digital Currency Group Sues Genesis for Over $1.1B in (https://coincentral.com/digital-currency-group-sues-genesis-for-over-1-1b-in-promissory-note/)

[3] DCG Sues Genesis for $105M Over $1.1B Post-3AC (https://www.ainvest.com/news/dcg-sues-genesis-105m-1-1b-post-3ac-rescue-note-2508/)

[4] DCG Sues Genesis for $105M Repayment from $1.1B (https://www.ainvest.com/news/dcg-sues-genesis-105m-repayment-1-1b-bailout-note-2508/)

[6] Digital Currency Group (DCG) drags subsidiary Genesis (https://www.bitget.com/news/detail/12560604914805)

[7] DCG Sues Genesis Over $1.1B Promissory Note Tied to (https://cryptodnes.bg/en/dcg-sues-genesis-over-1-1b-promissory-note-tied-to-post-3ac-collapse-rescue/)