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Genesis files for bankruptcy as Gemini targets parent company DCG

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(Kitco News) - Institutional crypto brokerage Genesis filed for bankruptcy late Thursday night after months of concern over the degree of its exposure to FTX and Alameda and weeks of bitter conflict with the Gemini crypto exchange whose customer assets they held.

“Genesis has now commenced a court-supervised restructuring process to further advance these discussions and reach a holistic solution for its lending business, which, if achieved, would provide an optimal outcome for Genesis clients and Gemini Earn users,” they wrote.

Parent company Genesis Global Holdco LLC (GGH) and subsidiaries Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd each filed voluntary petitions for bankruptcy protection in the Southern District of New York. Court, and they have requested that the three cases be administered jointly.

The move comes after yesterday’s reports that Genesis was in confidential negotiations with various creditor groups and would file for bankruptcy protection if it failed to raise the necessary capital.

The company has proposed a plan to be overseen by an independent special committee of the company’s board of directors. The plan includes the creation a trust to distribute assets to their various creditors, and a “dual track process” which would pursue “a sale, capital raise and/or equitization transaction that would enable the business to emerge under new ownership.” Should they fail to finalize a sale or raise sufficient capital, “creditors will receive ownership interests in Reorganized GGH.”

“An in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Genesis Interim CEO Derar Islim. “We deeply appreciate our clients’ ongoing patience and partnership as we work towards an equitable solution.”

Genesis said they have chosen Moelis & Company to act as financial advisor, Cleary Gottlieb Steen & Hamilton LLP as their legal counsel, and Alvarez & Marsal as their restructuring advisor. The firm has more than $150 million in cash on hand to support ongoing business operations and the restructuring process.

“Genesis and its advisors will continue to evaluate options to advance the process to reach a global resolution,” they said.

Genesis struggled to raise fresh capital or reach a deal with its creditors since it halted withdrawals in November in the wake of the collapse and bankruptcy of crypto exchange FTX and sister company Alameda Research. This also put enormous strain on Digital Currency Group (DCG), the parent company of Genesis, and their CEO Barry Silbert.

Then on Jan. 12, the U.S. Securities and Exchange Commission (SEC) filed charges against both Genesis Global Capital and Gemini Trust Company for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. Both the SEC and federal prosecutors in New York are also investigating the transfer of funds between DCG and Genesis and reviewing what the companies told investors about the transactions.

Cameron Winklevoss, who together with his twin brother Tyler owns Gemini, posted a thread on Twitter calling the Genesis bankruptcy filing “a crucial step towards us being able to recover” client assets while again taking aim at DCG and Silbert.

“The good news is that, by seeking the protection of the bankruptcy court, Genesis will be subject to judicial oversight and be required to provide discovery into the machinations that brought us to this point,” he said, adding that the filing “does not insulate Barry [Silbert], DCG, and any other wrongdoers from accountability.” Winklevoss said that they would file a lawsuit against DCG and Silbert “imminently” if they do not receive an offer they consider fair.

DCG has struggled since FTXs’ collapse and has recently been forced to take actions to shore up its finances, including putting a halt to its quarterly dividend payments to shareholders, which the firm announced in a letter sent to shareholders on Jan. 17.

In the letter, the DCG said that it was focused on “strengthening our balance sheet by reducing operating expenses and preserving liquidity. As such, we have made the decision to suspend DCG's quarterly dividend distribution until further notice.” The firm also indicated that it was considering selling some of the assets in its portfolio to help with the fundraising process.

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