TLDR
- Digital Currency Group has filed a lawsuit against its subsidiary Genesis Global Capital.
- The lawsuit concerns a $1.1 billion promissory note issued during the 2022 crypto market crash.
- DCG claims it issued the note voluntarily to cover a financial gap caused by the Three Arrows Capital default.
- Genesis reportedly gained more than the original note value from collateral recoveries after the market rebounded.
- DCG is now demanding over $105 million plus interest from Genesis in bankruptcy court.
Digital Currency Group (DCG) has filed a lawsuit against its subsidiary Genesis Global Capital LLC regarding a disputed $1.1 billion note. The complaint, lodged in the U.S. Bankruptcy Court in New York, claims Genesis benefitted financially after receiving the safeguard. DCG now seeks to recover $105 million plus interest, asserting that Genesis owes repayment due to asset recoveries.
$2.36 Billion Default Led to $1.1 Billion Promissory Note
DCG said the lawsuit stems from a failed margin call by crypto hedge fund Three Arrows Capital in 2022. Genesis, a major lender to Three Arrows, suffered a $2.36 billion default after the fund’s collapse. Consequently, DCG issued a $1.1 billion promissory note to stabilize Genesis’s balance sheet.
The filing states,
“DCG voluntarily and without any obligation to do so made a unilateral contribution to Genesis.”
This contribution aimed to plug the equity gap at Genesis Asia Pacific Pte. Ltd., an affiliate of Genesis. DCG emphasized that it acted to preserve value for the broader Genesis group and its creditors.
However, as markets rebounded, the TAC Collateral linked to Three Arrows appreciated significantly. DCG argued that Genesis realized “massive gains” from the recovered collateral assets. These gains, referred to as TAC Recoveries, reduced the note’s principal automatically, DCG claims.
DCG Demands Payment Citing Post-Crash Asset Gains
DCG now asserts that Genesis owes it over $105 million in remaining balance, plus additional accrued interest. The company believes Genesis’s gains from recovered assets exceed the full value of the $1.1 billion note. DCG’s legal team argues that Genesis must account for the recovery under the agreement terms.
“Genesis has realized gains… that far exceed its initial $1.1 billion Principal Amount,” DCG stated in its filing.
Despite these gains, Genesis has not returned the remaining balance owed under the note. The court will determine whether Genesis must repay the amount.
This filing adds another chapter to a lengthy internal legal battle between DCG and Genesis. In May, Genesis Litigation Oversight Committee sued DCG and its CEO Barry Silbert. That case seeks to recover billions allegedly misappropriated from Genesis before its bankruptcy.
Genesis Bankruptcy Fallout Continues to Unfold
Genesis filed for bankruptcy in 2023 following widespread failures across the crypto industry. The firm was hit by the collapses of TerraUSD, FTX, and Three Arrows. After halting lending operations, Genesis initiated restructuring and creditor repayment plans.
Genesis has since begun distributing $4 billion in assets to creditors under court supervision. Different cryptocurrencies have different recovery rates, with secured creditors prioritized. DCG, as an equity holder, stands last in line for any repayment.
Disputes continue as Genesis has also sued DCG for $2.1 billion to recover more customer funds. DCG has opposed the bankruptcy plan, questioning how asset recoveries are allocated. This lawsuit adds further strain between the two entities as bankruptcy proceedings move forward.
