Digital Currency Group (DCG) has taken legal action against its lending subsidiary Genesis, seeking confirmation that it is owed over $105 million plus interest from a financial backstop provided during the 2022 crypto downturn.
The lawsuit, filed on August 14 in the U.S. Bankruptcy Court for the Southern District of New York, revolves around a $1.1 billion promissory note issued by DCG to Genesis following the collapse of hedge fund Three Arrows Capital (3AC).
According to the complaint, 3AC, one of Genesis’s major borrowers, defaulted on a $2.36 billion margin call in mid-2022, resulting in a significant deficit in the equity of Genesis Asia Pacific, an entity owned by DCG.
DCG stated that it injected the note “voluntarily” to stabilize the business, but claims that as crypto markets recovered, Genesis benefited from collateral linked to 3AC well beyond the original value of the note. These gains, DCG argues, reduced the principal balance and now leave a remaining amount of $105 million.
In a statement, DCG emphasized that it went to great lengths to support Genesis during the challenging times of 2022 and is now seeking court confirmation of the repayment status.
This legal action adds to the existing tensions between the two companies. Earlier this year, Genesis’s litigation oversight committee filed a lawsuit against DCG, its CEO Barry Silbert, and other executives, alleging that billions of dollars were unlawfully taken from the lender in 2022.
Genesis, like several other prominent firms, faced difficulties in the aftermath of the FTX bankruptcy, ceasing lending activities towards the end of 2022 and filing for Chapter 11 bankruptcy protection in early 2023.
After completing its restructuring last year, Genesis started distributing around $4 billion to creditors, with the recovery amounts varying depending on the type of asset. As an equity holder, DCG is among the final parties to be repaid and has raised objections to certain aspects of the bankruptcy plan.
The ongoing legal dispute between DCG and Genesis reflects the complex and tumultuous nature of the cryptocurrency industry, and serves as a reminder of the challenges faced by companies operating in this rapidly evolving sector.