(Kitco News) - Genesis Global Capital, the institutional crypto brokerage firm at the center of the ongoing conflict between the cryptocurrency exchange Gemini and the Digital Currency Group (DCG), is reportedly preparing to file for Chapter 11 bankruptcy protection.
Bloomberg has reported that Genesis is currently in confidential negotiations with various creditor groups and plans on filing for bankruptcy protection if it fails to raise the necessary capital.
According to The Block, Genesis creditors – which includes Gemini – are negotiating a prepackaged bankruptcy plan with the firm and could potentially agree to a forbearance period of between one and two years. “In exchange, creditors will receive cash payments and equity in Genesis parent company Digital Currency Group,” a source for The Block said.
In late 2022, Gemini formed an ad hoc committee designed to help coordinate efforts with other creditors and advocate together for a resolution after Genesis halted withdrawals on its platform. This creditor committee has been in private negotiations with Genesis for the past few weeks to finalize a Chapter 11 bankruptcy protection plan ahead of filing.
Genesis has 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. The firm is said to owe Gemini and users of its Earn program $900 million in funds that remain locked in Genesis’ vaults.
All told, Genesis reportedly owes its creditors more than $3 billion.
The DCG, the parent company of Genesis, has likewise struggled in the wake of FTXs’ collapse and has been forced to take certain actions to shore up its finances. This includes putting a halt to its quarterly dividend payments to shareholders, which the firm announced in a letter sent to shareholders on Jan. 17, according to Bloomberg.
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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.
Unfortunately for the DCG, the total value of its assets is roughly $500 million, which is far short of the $3 billion owed by Genesis, highlighting the precarious nature of the situation and the reason behind the need to declare bankruptcy. So far, DCG has struggled to find outside funding amid the carnage left in the wake of FTX declaring bankruptcy.
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.
