Digital Currency Group (DCG) has filed a lawsuit against its subsidiary Genesis Global Capital over a $1.1 billion promissory note related to the 2022 crypto market crash.
Details of the DCG Lawsuit
DCG disclosed in its complaint their attempt to address a potential "hole" following the collapse of the Three Arrows Capital crypto hedge fund in 2022.
According to the report, DCG noted that Genesis was heavily exposed to Three Arrows Capital through the $1.1 billion promissory note. The firm added that Three Arrows did not fulfill a margin call from Genesis, resulting in a $2.36 billion default. To address this gap, DCG made a unilateral contribution to Genesis. The lawsuit claims that Genesis made significant gains from the TAC Collateral after crypto prices rebounded. DCG asserted that subsequent recoveries reduced the principal amount of the note on a dollar-for-dollar basis.
Implications of the Lawsuit for DCG and Genesis
The lawsuit represents the latest chapter in the ongoing saga between Genesis and DCG. In May, Genesis filed counter-lawsuits against DCG, alleging fraud and mismanagement. Genesis accused DCG and its CEO Barry Silbert of improper business practices leading up to bankruptcy. In its lawsuit, Genesis sought recovery of at least $2.2 billion in Bitcoin, Ethereum, and other cryptocurrencies.
How Genesis Troubles Began
Genesis was severely impacted by the crypto market turmoil in 2022, stemming from the collapse of the algorithmic stablecoin Terra USD and the subsequent downfall of the FTX exchange. Following the market crash, Genesis froze its lending operations and filed for bankruptcy in 2023, completing its restructuring process in August 2024. To date, Genesis has distributed approximately $4 billion in assets to creditors, with DCG being last in line for repayment. DCG has contested the bankruptcy plan, arguing it unfairly prioritizes creditors over its interests.
Despite the severe financial challenges facing Genesis, DCG's lawsuit highlights the ongoing complexity of their relationship amid the broader crisis in the cryptocurrency market.
