Genesis Global Capital, the cryptocurrency lending entity, has filed a legal suit against the Gemini exchange, seeking the restitution of over $689 million in allegedly preferential transfers. This legal confrontation arose in the aftermath of the collapse of FTX last November.
Genesis bases its lawsuit on the assertion that, as market volatility increased, Gemini made significant withdrawal requests that harmed other creditors.
The lawsuit focuses on transactions that occurred in the 90 days preceding Genesis’s bankruptcy filing in January.
Under U.S. bankruptcy law, courts can challenge certain transfers made before filing for Chapter 11 protection to fairly distribute assets. Genesis maintains that Gemini was aware of its precarious financial situation when demanding the return of funds.
Genesis Seeks Funds Through Lawsuits
This legal battle is the latest episode involving the two companies since the collapse of the cryptocurrency hedge fund Three Arrows Capital last summer. This event resulted in a loss of customer trust and liquidity issues for Genesis and other lenders.
When FTX declared bankruptcy, panic spread to Gemini’s lending program with Genesis. According to the lawsuit, Genesis made net transfers totaling over $765.8 million to Gemini in September and October 2022 alone. Genesis argues that these transfers should be considered preferential and subject to legal scrutiny.
In response, Gemini denied allegations of inappropriate actions leading up to its partner’s bankruptcy. The company emphasized its responsibility to users and expressed its commitment to seeking compensation for losses.
The Securities and Exchange Commission initiated an investigation into both companies in January for unregistered securities offerings. Last month, New York Attorney General Letitia James filed a lawsuit against both companies and added Digital Currency Group (DCG), Genesis’s parent company, accusing them of fraud and illegal behavior amounting to more than $1 billion against more than 230,000 investors, including nearly 30,000 users from New York.
Digital Currency Group was sued by both Genesis in September and Gemini in July. However, DCG considers Gemini’s filing an attempt to damage its reputation, suggesting that the company’s allegations are more about seeking public attention than being based on facts. Genesis seeks reimbursement for multiple loans the company had granted in the past, totaling around $600 million.
