Genesis, a financial service firm, and its parent company, Digital Currency Group (DCG) have been accused by three Gemini Earn users of concealing its bankruptcy. As a consequence, a request for a class action arbitration has been filed by the three Earn users over Gemini’s alleged undisclosed insolvency.
According to reports from CoinDesk, the claimants in their filings have alleged that Gemini neglected to return to them their digital assets in the Gemini Earn program as stipulated under the Master Agreement between the company and its users. The lawsuit was filed after Gemini Earn announced its inability to meet users’ redemption as Genesis paused withdrawals.
Furthermore, the claimants contended that Genesis originally infringed the agreement between them by fraudulently collaborating with DCG in hiding its bankruptcy status from its customers. The claimants also alleged that Genesis and DCG converted $2.3 billion in debt owed by the insolvent Three Arrows Capital into a $1.1 billion promissory note with a 10-year maturity.
It has also been revealed that a similar simultaneous class action suit instituted against Genesis alleged that Genesis sold unregistered securities through its Earn program.
The Gemini Earn is a product offered by Gemini that allows users to earn interest on digital assets that they deposit with Gemini. Users are able to generate a passive income when their digital assets are lent to institutions or other borrowers.
Is Genesis Bankrupt?
Genesis announced it was putting a halt to customers’ withdrawal following exposure to the insolvent FTX exchange, sending the signal that it may be bankrupt. The firm then hinted it was looking for new sources of capital to cover its financial troubles.
Genesis was reportedly alleged to owe its debtors more than $1.8 million following the halting of users’ withdrawals. The report also highlighted that Gemini established a creditors’ committee to recoup the $900 million loan it gave to Genesis and DCG. Barry Silbert, the founder of DCG stated that the loan was issued after DCG acquired Genesis’ risk from the Three Arrows Capital default.
A report from the Financial Times stated that Gemini’s attempt to recoup the funds demonstrates how the crypto lending market is at the center of the industry’s credit crunch following the failure of the bankrupt FTX exchange.
Barry Silbert, DCG’s CEO confirmed he had borrowed funds from Genesis Global Capital and other crypto investment firms for business purposes. He added that the loans collected were priced at market interest rates.
