By Geoffrey Smith
Investing.com — Crypto lender Genesis has filed for Chapter 11 bankruptcy, ending two months of failed efforts to fill holes in its balance sheet left by the collapse of hedge fund Three Arrows Capital and of the FTX exchange.
The lender and broker’s bankruptcy filing shows liabilities of at least $3.8 billion, far more than the conservative estimate of $3 billion that had been circulating before his demise.
This development represents a step towards a resolution for hundreds of thousands of retail investors whose money has been frozen in Genesis since it suspended withdrawals in November following the FTX implosion. Some 340,000 of them are clients of the Gemini investment platform, owned by Cameron and Tyler Winklevoss. Genesis’ bankruptcy filing suggests that Genesis owes them some $765 million.
It also sets the stage for a thorough examination of the governance arrangements of Genesis, which the Winklevoss twins have accused of being gutted by its owner, Barry Silbert’s Digital Currencies Group (DCG). The twins and Silbert own two of the largest crypto-asset wallets in the world, at least one of which could be used to pay back Gemini clients.
Prior to the filing, Gemini had publicly argued with Silbert over what he viewed as blocking Genesis’ debt restructuring efforts. At the same time, some Gemini customers had filed a class action lawsuit seeking compensation from the Winklevoss twins. The bankruptcy filing means both initiatives will be essentially on hold.
“A judicial restructuring is the most effective way to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, interim CEO of Genesis, 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 in seeking bankruptcy court protection, Genesis will be subject to judicial oversight and will be required to provide findings on the machinations that have brought us to this point.”
They added that they intended to take legal action against Silbert and DCG “imminently”.
Analysts have noted that Chapter 11 is weakening Gemini’s leverage over Genesis as it seeks to recover money from its customers.
“This action brings the Winklevoss twins’ restitution claim to a halt,” Frances Coppola, a veteran financial commentator, said via social media. “Gemini’s claim against Genesis will now proceed to bankruptcy court, and Gemini may not get all of its money back.”