Key Takeaways:
- Genesis allegedly hid a liquidity shortfall on its balance sheet.
- Troubles are mounting against the lender.
- Meanwhile, DCG announced a 23% climb in revenues.
NEW DELHI (CoinChapter.com) — Cryptocurrency lender Genesis allegedly lied to investors by hiding “an open-term liquid hole in their balance sheet,” according to Alex Thorn, head of firmwide research at Galaxy X.
In an X post, Thorn shared images of court documents that showed Genesis’s management “misled investors” by misrepresenting data about its financial health following the collapse of Three Arrows Capital (3AC).
The documents also alleged that following 3AC’s collapse, the Digital Currency Group (DCG) COO instructed Genesis Entities’ Co-Head of Trading and Lending to “manage [G]emini and the other largest counterparties,” fearing that Gemini Earn investors might make a bank run.
DCG is the parent company of Genesis. Gemini Earn is an investment program that DCG, Genesis, and Gemini Trust Co. jointly ran.
The liquidity hole long-term = the $900 m2m loss on [Three Arrows] + the lack of liquidity on the GBTC collateral which is another $450mm, so structurally, we have about 1.345B we’d need to get in the form of long-term debt or equity to ultimately have enough liquid capital to wind everything down.
Genesis management told DCG COO
Despite Genesis’ claim, DCG had absorbed those losses only on paper. Furthermore, the court documents showed that the losses due to the 3AC collapse resulted in a “duration mismatch” at Genesis Capital since the firm was missing $1 billion in open assets.
No End Of Trouble In Sight For Genesis
The court documents that Thorn shared were from the lawsuit that New York Attorney General Letitia James filed against Gemini Trust, Genesis Global, and DCG. The allegations state that the firms suffer from issues similar to the failed crypto exchange FTX.
AG James stated that the firms conspired to defraud 230,000 investors for over $1 billion. DCG founder and chief Barry Silbert stated he was “shocked by the baseless allegations in the Attorney General’s complaint.”
On Oct. 25, Reuters reported that Genesis claimed the lawsuit would force a bankruptcy liquidation, making it difficult to resolve the firm’s claims against DCG.
Furthermore, Genesis plans to propose a “no deal” bankruptcy plan. As such, the firm would distribute available crypto assets to customers while preserving litigation claims against DCG, Genesis attorney Sean O’Neal told the court.
Additionally, O’Neal claimed that the proposed plan was the only viable option for the firm following the latest lawsuit. On the other hand, DCG stated that while it hoped for a settlement, the firm could “defend and win” any litigation.
DCG Records Gains In Q3 2023 Revenue
Despite its legal troubles, DCG recorded a profitable third quarter in 2023. The firm reported a 23% hike in revenues in Q3 2023. Moreover, DCG stated that it had repaid some of the debt the firm owed to its subsidiary, Genesis.
Bloomberg reported that DCG recorded $188 million in Q3 revenue, a climb of $35 million year-on-year. Furthermore, the company claimed its earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $69 million in the latest quarter.
DCG has some bullish speculation working in its favor, with rumors of its asset management firm Grayscale getting regulatory approval for the first US spot Bitcoin (BTC) ETF doing the rounds.
