Digital Currency Group Sues Genesis Over $1.1 Billion Loan, Alleging Parent Company's 'Fraudulent Transfers'

Digital Currency Group (DCG) has sued its subsidiary Genesis over a $1.1 billion loan, claiming the crypto lender has profited from the collapse of Three Arrows Capital and subsequent bailout. DCG argues that the loan was more than enough to cover Genesis' losses, citing an increase in the value of recovered collateral from Three Arrows Capital. Genesis is seeking $3.1 billion in damages in a separate lawsuit against DCG.

Digital Currency Group (DCG) has filed a lawsuit against its subsidiary Genesis, alleging that the crypto lender profited from a $1.1 billion loan provided during the 2022 market crash. The lawsuit claims that the loan, issued to offset losses from the collapse of Three Arrows Capital (3AC), was more than sufficient to cover Genesis' financial damage. DCG argues that the value of recovered collateral from 3AC exceeded the loan amount, leaving Genesis with a profit. This development comes as Genesis seeks $3.1 billion in damages in a separate lawsuit against DCG [1].

The lawsuit, filed in the U.S. Bankruptcy Court for the Southern District of New York, alleges that Genesis' direct credit exposure to FTX was not material, but the FTX bankruptcy caused significant market turmoil, leading to Genesis' bankruptcy filing in January 2023 [2]. DCG contends that Genesis profited by hundreds of millions of dollars from the 3AC default, despite initially facing a shortfall in its equity [1].

DCG issued the $1.1 billion promissory note to Genesis Global Capital and Genesis Asia Pacific in June 2022 as a safeguard against potential liquidity problems. According to DCG's complaint, the collateral from 3AC, including shares of Grayscale's Bitcoin Trust, increased in value, allowing Genesis to recover nearly $2.8 billion on the original $2.36 billion in loans [1].

The lawsuit seeks more than $105 million plus interest from Genesis, arguing that the collateral recoveries exceeded the loan amount. This case is the latest in an ongoing legal battle between DCG and Genesis, with Genesis having previously sued DCG for $3.1 billion, alleging fraudulent transfers during the 2022 market turmoil [2].

References:
[1] https://cointelegraph.com/news/digital-currency-group-lawsuit-genesis-promissory-note
[2] https://www.benzinga.com/crypto/cryptocurrency/25/08/47162460/digital-currency-group-sues-genesis-over-1-1-billion-2022-bailout-amid-bankruptcy-dispute