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The bankruptcy of Sam Bankman-Fried’s crypto empire continues to make waves in the crypto industry.
Various companies continue to monitor each other to find out who the next collateral victim of this disaster will be after lender BlockFi goes down.
All eyes are on lender Genesis, a subsidiary of crypto juggernaut digital currency group aka DCG. Last November, the brokerage suspended customer withdrawals and new loan issuances as a result of FTX’s bankruptcy. The unit that stopped exiting was Genesis Global Capital, which works with institutional investors and had a total of $2.8 billion in active loans at the end of the third quarter.
The company had locked funds in its FTX trading account.
Genesis has also received attention from regulators. According to Bloomberg News, the Justice Department and the Securities and Exchange Commission are conducting separate investigations into the relationship between the lender’s parent company and the two companies.
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Relationship between DCG and Genesis
For example, federal prosecutors are scrutinizing the movement of funds between DCG and Genesis. We also want to identify what was communicated to investors about the transaction between the two companies.
This is similar to investigators’ interest in an incestuous relationship between FTX and sister company Alameda Research, a hedge fund that was also a trading platform for institutional investors. With the collapse of the Bankman-Fried empire, it was revealed that funds from FTX clients had been loaned to his Alameda worth nearly $10 billion. But even with the same founder, the two companies were supposed to be independent.
Federal agents have requested documents from the DCG and Genesis. Both investigations are still in their early stages and no allegations have yet been filed against Digital Currency Group or Genesis.
“While we do not comment on specific legal or regulatory matters, Genesys maintains regular dialogue and will cooperate with relevant regulators and authorities upon inquiry,” a spokesperson said on the e-mail. He told TheStreet via email.
The DCG did not immediately respond to requests for comment, nor did the DoJ and SEC. The Justice Department investigation is led by the US Attorney’s Office for the Eastern District of New York.
“DCG has a strong culture of integrity and has always operated legally. We are unaware of, and have no reason to believe, that there is an Eastern District of New York investigation into DCG,” the company told Bloomberg. rice field.
Information about the regulatory investigation comes at a very bad time for DCG and its subsidiaries. The Wall Street Journal reported a few days ago that Genesis is on the verge of bankruptcy.The company also decided on emergency measures, in particular cutting his 30% of employees.
A spokesperson told TheStreet on Jan. 5:
Genesis’ bankruptcy filing will also affect the Gemini cryptocurrency exchange, founded by billionaire twin brothers Tyler and Cameron Winklevoss.
Genesis offering loans
Genesis is Gemini’s partner in rewards programs offered by the platform to attract customers. The program is called Gemini Earn. This is a high-yield savings product that promises cryptocurrency exchange customers up to 8% annual returns on their cryptocurrency deposits, depending on the assets held. Under this program, Genesis will act as the primary lender to Gemini.
Genesis owes Gemini’s Earn users $900 million. Gemini was also forced to suspend withdrawals related to Gemini Earn following the decision of Genesis, which is owned by crypto giant Digital Currency Group.
For several weeks, the two companies have been working to resolve the issue, but it seems that things have not progressed. In an open letter to DCG founder and CEO Barry Silbert, Cameron Winklevoss said:
Silbert told investors last November that DCG received a $575 million loan from Genesis with a May deadline. He also said he had $1.1 billion in promissory notes due in June 2032 in connection with the collapse of hedge fund Three Arrows Capital (3AC).
He argued that loans were “always structured on an arm’s length basis and priced at prevailing market rates.”
In addition to DCG and Genesis, Silbert also manages Grayscale Investments, a digital asset management company that operates Bitcoin Trust. DCG is also the parent company of Foundry Digital, his provider of crypto mining services, and Luno, a London-based cryptocurrency exchange.
Finally, DCG also owns cryptocurrency news site CoinDesk, which published an article that raised allegations about FTX.
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