Gemini sued Genesis over $1.6 Billion Bitcoin Fund, GBTC shares

On October 27, 2023, the cryptocurrency exchange Gemini took a significant legal step against its former business partner, Genesis Global, by filing a lawsuit over a dispute involving Grayscale Bitcoin Trust (GBTC) shares. The contention centered around 60 million GBTC shares that were pledged as collateral, which Gemini claimed were worth $1.6 billion.
 

The lawsuit was filed amidst Genesis’ bankruptcy proceedings, with Gemini seeking control over the GBTC shares. This action was portrayed as a move to secure and satisfy the claims of all customers associated with Gemini’s Earn product, whose funds were frozen when Genesis halted withdrawals the previous year.
 

Gemini’s legal action alleged that Genesis had taken measures detrimental to Earn users and obstructed their recovery of digital assets. The lawsuit aimed to resolve these issues, allowing Genesis to progress with a reasonable reorganization plan and enabling Gemini to distribute the collateral proceeds to Earn users.
 

This legal battle came on the heels of a separate lawsuit filed by New York Attorney General Letitia James against Gemini, Genesis, and their parent company, Digital Currency Group (DCG). The attorney general accused them of defrauding investors of over $1 billion.
 

The backdrop of this legal turmoil was the tumultuous events of 2022, which saw the collapse of the crypto hedge fund Three Arrows Capital and Sam Bankman-Fried’s FTX. These events precipitated Genesis’ bankruptcy filing in January 2023.
 

In the lawsuit, Gemini contended that Genesis had disputed the foreclosure action on the collateral, preventing the distribution of proceeds. Furthermore, Genesis proposed using the initial value of the collateral, rather than the foreclosure value, to determine the deficiency claim of Earn users. This would potentially free up hundreds of millions of dollars for other creditors at the expense of Earn users.