tl;dr
Digital Currency Group (DCG) has sued its lending arm, Genesis, in bankruptcy court to confirm it is owed over $105 million plus interest from a $1.1 billion promissory note issued during the 2022 crypto market downturn. The note was issued after Genesis borrower Three Arrows Capital defaulted on a ...
Digital Currency Group (DCG) has initiated legal action against its lending arm, Genesis, seeking confirmation from a bankruptcy court that it is owed over $105 million plus interest. This stems from a financial backstop DCG provided during the 2022 crypto market downturn.
The lawsuit, filed on August 14 in the U.S. Bankruptcy Court for the Southern District of New York, revolves around a $1.1 billion promissory note issued by DCG to Genesis. This was in response to the collapse of hedge fund Three Arrows Capital (3AC), a major Genesis borrower, which defaulted on a $2.36 billion margin call in mid-2022, severely impacting Genesis Asia Pacific’s equity, a subsidiary owned by DCG.
DCG claims it voluntarily issued the note to stabilize Genesis, but as crypto markets recovered, Genesis accrued profits from collateral linked to 3AC that exceeded the note’s value. DCG argues these gains should reduce the principal balance, leaving a remaining $105 million unpaid.
In its statement, DCG emphasized the extraordinary efforts taken to keep Genesis operational during the market turmoil and now seeks judicial confirmation of the repayment status.
This lawsuit adds to the ongoing tensions between DCG and Genesis. Earlier this year, Genesis’s litigation oversight committee filed a suit against DCG, CEO Barry Silbert, and other executives, alleging wrongful extraction of billions from the lender in 2022.
Genesis, which was among several prominent firms to collapse following the FTX bankruptcy, stopped lending activities in late 2022 and filed for Chapter 11 bankruptcy protection in early 2023. After restructuring, Genesis began distributing approximately $4 billion to creditors, with recovery amounts depending on asset types.
As an equity holder, DCG ranks among the last to be repaid, prompting it to challenge various elements of the bankruptcy plan as it seeks to recover its investments.