Gemini Sues Bankrupt Lender Genesis, Its Former Partner, Over $1.6B Worth of GBTC

Cryptocurrency exchange Gemini has sued Genesis Global, its former business partner for its Gemini Earn product, over 60 million shares of the Grayscale Bitcoin Trust (GBTC) that were pledged as collateral.

In an action filed as part of Genesis’ bankruptcy case, Gemini is seeking to gain control of the GBTC shares, which, Gemini said, “would completely secure and satisfy the claims of every single” Earn customer – whose money was locked up when Genesis froze withdrawals last year.

(Genesis, Grayscale and CoinDesk are all owned by the same parent company, Digital Currency Group.)

“Genesis has repeatedly taken actions to harm Earn users and to hinder and delay Earn users’ recovery of their digital assets,” the lawsuit alleged. “It is time to resolve these issues so that Genesis may move forward with a reasonable plan of reorganization and Gemini may distribute the proceeds of the collateral to Earn users.”

The filing comes a week after New York Attorney General Letitia James filed a separate lawsuit against Gemini, Genesis and DCG over allegedly defrauding more than 230,000 investors of more than $1 billion.

Both Gemini and Genesis found themselves in troubled waters in 2022 following the collapse of crypto hedge fund Three Arrows Capital and Sam Bankman-Fried’s FTX, which led to Genesis filing for bankruptcy in January.

In September, Genesis and DCG said that Gemini Earn customers would be made “nearly whole” under a proposed remuneration deal.

Genesis did not immediately respond to CoinDesk’s request for comment.

On one other point, the Genesis and Gemini have strongly agreed: opposing accusations from the U.S. Securities and Exchange Commission (SEC) that Earn was an unregistered security. In May, the companies asked a court to dismiss an SEC lawsuit targeting the program.

UPDATE (October 27, 2023, 16:44 UTC): Adds information from the lawsuit.