The crypto lender Genesis has initiated two lawsuits against the Digital Currency Group (DCG) holding company and its founder Barry Silbert for a total of $3.3 billion. In these lawsuits, the company accuses the parent company and its management of breaching fiduciary duties and committing fraud.
This is reported by Business • Media
According to documents filed with the Delaware Court of Chancery, DCG used Genesis as a sort of treasury, withdrawing funds under the guise of financial well-being. The plaintiffs argue that Silbert and other top executives of the holding neglected necessary control measures while engaging in risky financial operations.
Violations and Fraud
These actions, according to the plaintiffs, generated income for DCG and Grayscale Investments, another portfolio company, to the detriment of Genesis’s creditors. As part of the lawsuit, Genesis is seeking the recovery of crypto assets worth $2.1 billion in kind.
“Under Silbert’s control, Genesis positioned itself as a well-managed cryptocurrency bank. In reality, Silbert and DCG exploited the insolvent Genesis for their own interests. When Genesis collapsed, DCG issued the firm a promissory note for $1.1 billion, which was supposedly meant to bolster liquidity, but in fact, this loan was not due for repayment for a decade,” the lawsuit states.
Claims for Recovery
Additionally, the Genesis Litigation Oversight Committee (LOC) submitted a claim for the recovery of another $1.2 billion to the U.S. Bankruptcy Court for the Southern District of New York, which had been withdrawn from the company in the year leading up to its bankruptcy, while top executives were already aware of its insolvency. Silbert and other executives are accused of deceiving investors, creating fictitious deals to create the appearance of financial stability, and securing loans against shares of GBTC, the Grayscale Investments trust, which at that time were illiquid.
Genesis filed for bankruptcy in January 2023. Subsequently, the company, its parent structure, and its management faced a class-action lawsuit for promoting unlicensed securities. The crypto lender managed to recover part of its assets, notably through the sale of GBTC shares. In August 2024, the company began returning funds to affected clients.