The Crypto lending firm, Genesis Global Capital has launched two lawsuits against its parent company, Digital Currency Group (DCG), and CEO Barry Silbert, seeking to recover more than $2 billion in digital assets and cash transfers it claims were improperly diverted while the company was insolvent.
In a complaint unsealed Monday in Delaware Chancery Court, Genesis is demanding the return of 1 million crypto coins, currently valued at approximately $2.1 billion, to help repay its creditors. The case accuses DCG and affiliated insiders of reckless loan practices, fraudulent self-enrichment, and misleading the public about Genesis’ financial condition.
Filed alongside a second complaint in the US Bankruptcy Court for the Southern District of New York, the legal action represents a major escalation in the fallout from Genesis’ high-profile collapse and bankruptcy filing in 2023.
Genesis Global vs DCG: Allegations of Fraud and Mismanagement
The Delaware lawsuit alleges that DCG and its top executives, including founder Barry Silbert, “abused their control” of Genesis to engage in self-dealing and mismanagement. The complaint details what it describes as a pattern of “reckless lending, misinformation campaigns, and manipulation of financial disclosures,” which ultimately benefited DCG and its affiliated investment vehicle, Grayscale Investments, at the expense of Genesis’ customers.
“The defendants showed a pattern of self-dealing, fraud, and mismanagement that deprived hundreds of Genesis creditors and institutional lenders of billions of dollars in value,” said Philippe Selendy of Selendy Gay PLLC, who represents the Genesis litigation oversight committee.
In the bankruptcy filing, Genesis seeks to claw back over $1 billion in transfers made during the year leading up to its bankruptcy, alleging that many were either preferential or fraudulent under US bankruptcy law. The company says the transfers were made even as it was facing insolvency and a rapidly deteriorating market.
According to the complaint, the disputed transfers include $448 million to DCG, $136 million to DCG International, $101 million to HQ Enhanced Yield Fund, another DCG subsidiary and $34 million in tax payments to DCG, which Genesis now claims were fraudulent.
The allegations are that these transactions occurred amid severe market turmoil, including the collapse of stablecoin Terra-Luna, the bankruptcy of crypto hedge fund Three Arrows Capital, and the FTX collapse, all of which significantly weakened Genesis’ financial position.
By the end of 2021, Genesis said it had amassed $14 billion in outstanding loans and was effectively insolvent, though DCG continued to transfer assets out of the company in a bid to protect its own financial interests.
“DCG recognized the existential threat to Genesis and, with it, to DCG and the insider defendants that had loaned Genesis hundreds of millions of dollars,” Genesis stated in its bankruptcy court complaint.
Genesis filed for bankruptcy in January 2023 and emerged from proceedings last year, despite opposition from DCG.
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