DCG Sues Genesis Over $105M Promissory Note Amid $2.8B Asset Recovery

Digital Currency Group (DCG) has filed a lawsuit in the U.S. Bankruptcy Court for the Southern District of New York against its former subsidiary, Genesis Global Capital, over a $1.1 billion promissory note issued in June 2022. The note was intended to address potential losses stemming from the collapse of Three Arrows Capital (3AC), a major crypto hedge fund. DCG is now seeking repayment of over $105 million in principal and interest, claiming that Genesis has already recovered significantly from the losses and no longer needs the funds [1].

The legal action stems from DCG’s claim that subsequent market recoveries—particularly in Bitcoin—allowed Genesis to recoup more than $2.8 billion in collateral from 3AC-related assets. This, according to DCG, means that the initial rescue was no longer necessary and the outstanding note should be repaid. The company’s CEO, Barry Silbert, stated that the note was issued to stabilize Genesis’s balance sheet and protect account holders following the 3AC default [2].

Genesis has responded by filing its own lawsuit against DCG, seeking the return of over $3.1 billion in assets and disputing the validity of the promissory note. The subsidiary is arguing that the collateral it has recovered justifies its current financial position and that it has not received an undue windfall. The legal dispute marks a significant escalation in the ongoing tensions between DCG and Genesis, which were already under strain due to the broader collapse of the crypto lending sector [3].

The case has raised broader questions about the nature of intercompany loans in highly volatile markets. DCG maintains that the original agreement was not meant to be a permanent financial transfer, but a short-term stabilization measure. The company also argues that allowing Genesis to retain the funds would effectively make DCG a creditor in the bankruptcy process, which it says was not its intention [4].

Industry observers believe the outcome of this case could influence future regulations and legal interpretations around asset recovery and allocation in crypto-related bankruptcies. Similar disputes have emerged in the wake of other high-profile crypto failures, such as the FTX and Terra-LUNA collapses, making this case a potential precedent for how such matters are handled in the future [5].

The legal battle has not yet resulted in the liquidation of major crypto assets held by Genesis, but the ongoing uncertainty is likely to impact creditor expectations and market sentiment. The case is being closely watched by investors and legal experts as a test of how traditional bankruptcy principles apply to the rapidly evolving crypto sector.