Digital Currency Group's Genesis Global files for bankruptcy protection

Genesis Global Holdco filed for bankruptcy protection late Thursday in U.S. Bankruptcy Court for the Southern District of New York.

The news comes after the firm failed in a bid to raise cash for its troubled lending unit and cut 30% of staff in a fresh round of layoffs in early January.

The firm took a financial hit following the collapses of the crypto hedge fund Three Arrows Capital and the FTX exchange last year. Creditors had been pursuing options to prevent such a move. 

The firm halted withdrawals and new loan originations from its lending affiliate on Nov. 16. Before that, Genesis Global Trading said its derivatives business had $175 million stuck in FTX following the failure of the crypto exchange.

Genesis told clients on Jan. 4 that was continuing to work toward finding a solution for the troubled borrowing and lending unit but that it needed more time to do so. The company at the time said that its derivatives and spot trading businesses were fully operational.

Facing heat

Genesis's travails have spilled over to other crypto firms, including Gemini, whose Earn program had been frozen since mid-November and has since been shuttered. Gemini co-founder Cameron Winklevoss this month accused DCG head Barry Silbert of "bad faith stall tactics" and comingling funds in an open letter he posted on Twitter. Silbert hit back with his own open letter.

In November, Genesis Global Capital sought as much as $1 billion in emergency funding and was reported to have sought potential buy-in from Binance. That target fell to $500 million, sources familiar with the matter later told The Block. The troubled crypto lending firm owes its creditors at least $1.8 billion, according to reports.

On Jan. 12, the Securities and Exchange Commission charged both Gemini and Genesis with the unregistered offering and sale of securities through the Gemini Earn lending program. The agency said that program was offered to retail investors, some of whom were in the U.S. 

An SEC official said Genesis and Gemini were partners engaged in activity that constituted the offer and sale of securities without registering. Apart from the fact that Genesis was the issuer, both are liable, the official said.  

SEC Chair Gary Gensler said those charges built on previous actions “to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.” 

“Doing so best protects investors,” Gensler said. “It promotes trust in markets. It’s not optional. It’s the law.” 

DCG also owns asset manager Grayscale and media company CoinDesk, which competes with The Block.

Update: story updated to clarify the relationship between Gemini and Genesis.