Gemini Files $1.6 Billion Lawsuit Against Genesis for GBTC Shares

New York-based cryptocurrency exchange Gemini has officially initiated legal action against Digital Currency Group’s (DCG) Genesis Global in the Southern District of New York Bankruptcy Court.

According to a Friday statement by the exchange, the lawsuit seeks to recover an astounding $1.6 billion in value from Gemini, allegedly owed to Earn Users who have been caught in the middle of the bitter dispute.

Notably, the saga began in the summer of 2022 when Gemini insisted that Genesis provide security for all loans taken by 232,000 Earn Users. Genesis subsequently pledged 62 million shares of Grayscale Bitcoin Trust (GBTC) as collateral to secure these loans. These shares, valued at almost $1.6 billion today, were meant to satisfy the claims of every Earn User fully.

However, Gemini has claimed that it only received $284.3 million from foreclosing on the collateral for the benefit of Earn users, a statement that Genesis has previously disputed.

“Genesis’s sole purpose in doing so is to deprive Earn Users of the full benefit of more than $500 million in post-foreclosure appreciation,” Gemini wrote.

Gemini further argued that Genesis has refused to remit the rest of the amounts, including a second tranche of collateral worth more than $800 million. As per the exchange, this collateral also belongs to Earn Users, as stipulated in an amendment to the security agreement. The exchange further argued that this stubbornness on Genesis’ part is an attempt to deny Earn Users access to millions in post-foreclosure appreciation. 

“If Genesis can successfully challenge Gemini’s foreclosure, then, in essence, Earn Users will be forced to share the appreciation of hundreds of millions of dollars, even though Genesis transferred the collateral to Gemini for the Earn Users’ sole benefit, and Gemini foreclosed on the collateral to protect the Earn Users’ interests,” Gemini added. 

Its shall be recalled that last November, Genesis suspended Earn User withdrawals, freezing more than $1 billion in digital assets. According to Gemini, Genesis chose instead to direct the frozen assets toward other creditors as part of its ongoing reorganization efforts after suffering a major financial blow following the collapse of Three Arrows Capital.

That said, this lawsuit marks the culmination of months of persistent efforts by Gemini to reach an amicable resolution with Genesis.  Friday’s filing thus called for the Bankruptcy Court’s confirmation of the legitimacy of Gemini’s foreclosure on the initial collateral and the recognition of Earn Users’ rights to the additional collateral. 

Furthermore, it sought to halt Genesis’s proposed reorganization plan, threatening to divert value from Earn Users to other creditors. By the time of writing this, there was no official response to the lawsuit from Genesis or its parent company, DCG.