Digital Currency Group being Litigious Towards a Subsidiarity Over a $1.1 Billion Loan Debt
In a dramatic turn of events, Digital Currency Group (DCG), the parent company of crypto lender Genesis, has filed a lawsuit against its subsidiary, claiming that Genesis profited rather than sustained losses following the 2022 collapse of the crypto hedge fund Three Arrows Capital (3AC) and the subsequent $1.1 billion bailout.
The lawsuit, filed on Thursday, May 25th, 2023, alleges that Genesis has profited by hundreds of millions of dollars due to the recovery of assets from Three Arrows Capital. The assets in question were primarily in Bitcoin and Grayscale Bitcoin Trust shares.
The lawsuit comes after Genesis sued DCG in May, alleging that its parent company and CEO Barry Silbert made fraudulent transfers from the lender as it was collapsing in 2022. It's seeking $3.1 billion in damages.
The controversy began when Genesis faced a $2.36 billion shortfall after 3AC defaulted in 2022. In an effort to help stabilize the situation, DCG issued a $1.1 billion promissory note to Genesis. The subsequent crypto market recovery increased the value of 3AC collateral, allowing Genesis to recover nearly $2.8 billion against the $2.36 billion exposure.
DCG believes that the obligations under the promissory note have now been fully satisfied and is asking the Court to confirm this. The company argues that due to the rise in the value of Bitcoin and Grayscale Bitcoin Trust shares, the obligations under the promissory note have been reduced to zero.
However, Genesis disputes this, countersuing DCG for $3.1 billion alleging fraud and asset transfers during insolvency, reflecting ongoing legal conflict between the entities.
It's important to note that the crypto market was in a bear phase during this period, with the collapse of Terra causing a "crypto contagion." DCG took extraordinary efforts to voluntarily support Genesis, including by issuing a promissory note to help close a potential book equity gap resulting from the collapse of Three Arrows Capital.
The Daily Debrief Newsletter can be viewed on Walrus for more updates on this developing story.
- The Digital Currency Group's lawsuit against Genesis claims that Genesis profited from the recovery of digital assets from the collapsed crypto hedge fund Three Arrows Capital, primarily in Bitcoin and Grayscale Bitcoin Trust shares.
- In the lawsuit, DCG alleges that Genesis has profited by hundreds of millions of dollars due to the crypto market recovery, reducing the obligations under the promissory note issued by DCG to zero.
- Genesis, on the other hand, has sued DCG, claiming fraudulent transfers and seeking $3.1 billion in damages, reflecting an ongoing legal conflict between the entities.
- The controversy stems from a $2.36 billion shortfall faced by Genesis after Three Arrows Capital defaulted in 2022, for which DCG issued a $1.1 billion bailout.
- The crypto market was in a bear phase during this period, with the collapse of Terra causing a "crypto contagion." Despite this, DCG took extraordinary efforts to support Genesis.
- In the digital currency and finance business landscape, this legal dispute between DCG and Genesis offers insights into the complexities and challenges faced by cryptocurrency entities during a bear market.
