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Hello and Happy Lunar New Year,
The professor who taught me business law had a droll way of introducing his class. “Welcome to Three-card Monte for millionaires,” he’d say with a predatory smile that made it clear he wasn’t really joking.
The next four months were filled with stories and examples of how corporations had stacked the deck to protect themselves and their money when things went pear-shaped.
That professor would have loved the Genesis bankruptcy case.
If you missed that news, that’s OK. We’ll recap.
Image credit: Timmy Loen
Genesis’ problems started in July last year when it admitted that it lost US$1.2 billion in the collapse of Three Arrows Capital. In November 2022, Genesis – which promoted itself as the premier institutional digital asset financial services firm – announced it had US$175 million locked in FTX, which had just declared bankruptcy. That same month, Genesis halted withdrawals and new loans, warning about a possible bankruptcy itself.
Earlier this month, it cut about 30% of its staff and then filed for bankruptcy protection in New York. The paperwork is filled with surprises. According to documents filed in New York, Genesis now owes its creditors about US$3.4 billion.
And aside from the Chapter 11 proceedings, the US Securities and Exchange Commision (SEC) is also suing Genesis for illegally selling securities. But we’ll come back to this in a minute.
Now here’s the part my old professors would have loved. The bankruptcy covers three companies: Genesis Global Capital, Genesis Asia Pacific, and their parent company Genesis Global Holdco. What the bankruptcy does not include is Digital Currency Group (DCG), the parent company of Holdco. This was curious because DCG borrowed over US$1.6 billion in unsecured loans from Genesis Global Capital months before the bankruptcy.
The question on everyone’s mind, including a special committee investigating the matter, is what game does CEO Barry Silbert think he’s playing what possible legal reason could DCG have for borrowing US$1.6 billion from subsidiaries it likely knew were about to go bankrupt?
Not surprisingly, the lawyers in the case are already talking about “avoidance actions,” which in legal terms means “put that money back.” If that happens, DCG – which is also the parent company of Bitcoin mining pool Foundry, media house CoinDesk, and asset management company Grayscale – could find itself dragged into bankruptcy proceedings.
And this isn’t the only game of silly buggers being played, according to legal papers.
⭐ TO THE STARS
🌙 TO THE MOON
🌏 BACK TO EARTH
STILL A PONZI SCHEME
MORE TO CHEW ON
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