Genesis seeks to recover $689 million of 'avoidable transfers' from Gemini in ongoing legal battle

Genesis Global Capital has filed a lawsuit against Gemini Trust Company and participants in the Gemini Earn Program, aimed at recovering alleged preferential transfers worth approximately $689 million.

Gemini Earn allowed users to lend digital assets to Genesis Global as part of a tri-party contract, which was terminated earlier this year.

Digital Currency Group subsidiary Genesis alleges that Gemini, operating as a cryptocurrency platform and custodian, made substantial withdrawals from Genesis of at least $689,302,000, according to a court filing late yesterday.

These transactions, referred to as "avoidable transfers," are claimed to have occurred during a critical 90-day period leading up to Genesis's Chapter 11 bankruptcy proceedings in January. 

The lawsuit argues that these transfers were made at the expense of other creditors, who “continue to benefit to this day through their retention of the property” Genesis seeks to recover. The filing asked the court to “correct this unfairness” and return the defendants to the same position as Genesis and other similar creditors.

Crypto market turmoil and ongoing legal feud

Genesis is attempting to address what it sees as an unfair advantage gained by Gemini at a time of widespread market upheaval, with the filing alleging it contributed to a “run on the bank” following the market turmoil, leading to “unprecedented withdrawals” ahead of its bankruptcy filing.

The backdrop of this legal battle was the tumultuous year 2022 for the crypto industry. The Terra ecosystem collapsed in May, followed by hedge fund Three Arrows Capital in June and the crypto exchange FTX in November. Since then Gemini has been battling Genesis and its parent company Digital Currency Group for months over an agreement the firms had as part of the Gemini Earn Program.

Genesis, DCG, Gemini and other creditors initially reached a bankruptcy agreement to recover assets in February. However, the deal failed to materialize.

Gemini later sued Genesis, its parent company DCG and its founder Barry Silbert in July, accusing them of "fraud against creditors" and seeking to claim around $1.1 billion of assets stuck on Genesis. DCG said the lawsuit was "yet another publicity stunt from Cameron Winklevoss," and the firms have continued their feud since.

Last month, Gemini filed a complaint against Genesis over $1.6 billion in GBTC shares, telling the court that Genesis promised to deliver those shares to secure loans made by Gemini users as part of its Gemini Earn Program. 

New York Attorney General Letitia James has also filed a complaint against multiple entities involved in the Gemini Earn saga. The NYAG claims that Genesis, Michael Moro and Barry Silbert conspired to fraudulently represent Genesis’ financial condition to hide the hole in its finances.

Gemini and Genesis did not immediately respond to a request for comment from The Block.