Genesis declares bankruptcy, owes creditors $3.4 billion

Digital-asset brokerage and lender Genesis has filed for bankruptcy in the US as the dramatic collapse of Sam Bankman-Fried’s empire continues to reverberate across the industry.

Owing creditors at least $3.4 billion, Genesis had already halted most activity on its platform and froze customer redemptions on November 16, citing a liquidity crunch triggered by significant exposure to FTX.

The lender, owned by venture capital firm Digital Currency Group (DCG), said it was seeking court protection to restructure, settle its debts and recover money for investors.

Genesis spent the past two months seeking at least $1 billion in fresh capital, including rumors over a potential investment from Binance, but the funding has apparently failed to materialize.

At the time, Genesis warned its existing investors that it may need to file for bankruptcy if its efforts fail. The company suffered in the fallout from FTX’s implosion after revealing that it had $175 million locked in a trading account.

Commenting on Genesis and the crypto contagion from FTX, Jack Tan, Co-founder of WOO Network, said: “Unfortunately, Genesis’ struggle shows that the contagion from FTX is not over, and this may further slow down the adoption and trust from institutions. To illustrate, Genesis is said to owe creditors more than $3B and had more than $175M locked up in FTX and halted the customer withdrawal since Nov 16, 2022. Currently, DCG cut costs by halting its dividend, which may not be enough to resolve its problem.”

In a filing with the US bankruptcy court for the southern district of New York, Genesis said it owed money to more than 100,000 creditors. The lender’s assets were worth $5.3 billion while its aggregate liabilities, including intercompany debts, were ranging from $1.2 billion to $11 billion as of November 30.

Additional affiliated companies are part of the proceedings, including Genesis Global Holdco, parent of Genesis Global Capital, and lending unit Genesis Asia Pacific. The company said it had almost $257 million in cash on hand to support the restructuring.

“We look forward to advancing our dialogue with DCG and our creditors’ advisers as we seek to implement a path to maximise value and provide the best opportunity for our business to emerge well-positioned for the future,” Genesis interim chief executive Derar Islim said in a statement.

Genesis is also embroiled in regulatory trouble with the Securities and Exchange Commission (SEC), which accuses the firm of illegally selling crypto assets to hundreds of thousands of investors.

Gemini and Genesis have been charged by US regulators of breaking the law by offering and selling the products through their joint program, Gemini Earn, which launched in 2021.