Bankrupt Genesis Sues Crypto Firm Gemini to Recover $690 Million

Jonathan Randles, Bloomberg News

The Gemini Trust Co. application on a smartphone arranged in Dobbs Ferry, New York, U.S., on Saturday, Feb. 20, 2021. Bitcoin has been battered by negative comments this week, with long-time skeptic and now Treasury Secretary Janet Yellen saying at a New York Times conference on Monday that the token is an “extremely inefficient way of conducting transactions.” , Bloomberg

(Bloomberg) -- Bankrupt crypto lender Genesis Global Holdco LLC is suing Gemini Trust Co. to recover nearly $690 million that Genesis says the crypto platform withdrew from Genesis in the months before the company’s Chapter 11 filing in January.

Genesis said in a Tuesday complaint in New York bankruptcy court that the withdrawals made by Gemini were unprecedented and amounted to a run-on-the-bank that came at the expense of the crypto lender’s other creditors.

The lawsuit escalates disputes in the bankruptcy between Genesis and Gemini, which collaborated on its Gemini Earn program that let clients collect about 8% interest on their digital-asset holdings. Last month, Gemini sued Genesis in an attempt to determine who rightfully owns a slug of shares in the Grayscale Bitcoin Trust now worth nearly $1.6 billion.

Gemini lawyers didn’t immediately respond Wednesday to a message seeking comment.

In general, Chapter 11 gives failed companies like Genesis the ability to recover funds that it paid-out in the months before bankruptcy even if the beneficiaries did nothing wrong. The legal power is meant to make sure certain creditors don’t get a windfall just because they were able to get their money out of a failed business while others couldn’t.

Genesis said Tuesday that it filed the lawsuit to put Gemini in the same position as its other creditors and correct the unfairness stemming from the substantial withdrawals before it filed bankruptcy. The complaint documents withdraws totaling about $689.3 million between Oct. 20, 2022 and early Nov. 11, 2022.

The withdrawals targeted in the lawsuit occurred before Genesis paused all lending and borrowing on its platform on Nov. 16. Genesis said it was already insolvent when the transfers were made.

The bankruptcy is Genesis Global Holdco, LLC, 23-10063, US Bankruptcy Court, Southern District of New York (Manhattan)