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- 1 Genesis Global has reportedly filed a lawsuit against its partner Gemini Trust.
- 2 The SEC lawsuit, filed in January, names Genesis, its parent company Digital Currency Group, and Gemini as defendants.
In a significant legal development within the crypto lending sphere, Genesis Global has filed a lawsuit against its partner Gemini Trust. The move comes as Genesis seeks to recover over $689 Million that customers withdrew during what the company describes as a “run on the bank.” The lawsuit, filed in federal bankruptcy court in New York, sheds light on the complex dynamics of the crypto lending landscape.
According to Genesis, the withdrawals occurred within a 90-day period preceding its filing for bankruptcy in January. Up to 230,000 users who participated in the “Earn” investing program are at the center of this legal dispute.
Genesis argues that these withdrawals, considered a “run on the bank,” should be subject to clawback under U.S. bankruptcy law. The aim is to ensure a fair redistribution among all creditors involved.
Gemini Trust, however, has responded assertively, urging Genesis to fully repay customers instead of pursuing clawbacks from users who made withdrawals. Gemini characterized the legal move as an “attack on Earn Users,” deeming it a departure from reasonable practices within the crypto lending ecosystem.
The lawsuit brings attention to the intricacies of the operating agreements between the two companies, involving the borrowing of crypto assets from Earn customers, reinvestment, and interest payments, with Gemini serving as custodian.
The legal conflict occurs against the backdrop of heightened regulatory scrutiny and internal tensions within the “Earn” program, which have intensified since Genesis filed for bankruptcy.
Despite these challenges, Genesis is proceeding with a bankruptcy liquidation process that aims to return some cryptocurrency to customers, albeit without a comprehensive resolution of the ongoing legal disputes.
This lawsuit adds another layer to the legal entanglements surrounding Genesis, as both the Securities and Exchange Commission (SEC) and the New York Attorney General have initiated legal actions against the crypto lender.
Whereabouts of the Lawsuit
The SEC lawsuit, filed in January, names Genesis, its parent company Digital Currency Group, and Gemini as defendants. Meanwhile, the New York Attorney General’s lawsuit alleges fraud amounting to over $1 Billion.
Gemini, co-founded by the Winklevoss twins, has itself been engaged in legal battles, having previously sued Digital Currency Group over the failure of their crypto lending partnership. Additionally, Gemini filed a suit against Genesis for failing to return shares pledged as collateral in a Bitcoin trust.
These legal battles underscore the challenges and legal complexities within the cryptocurrency industry as it grapples with increased regulatory scrutiny and the evolving nature of crypto lending practices.
However, some lawsuits resolve long-standing crucial issues for the industry as seen with Ripple and Grayscale against the U.S. SEC.
In June this year, a United States court ruled in favor of Ripple and XRP stating that the crypto asset is not a security as alleged by the financial regulator. On the other hand, asset manager Grayscale filed with the SEC to convert its flagship Bitcoin Trust fund into a spot Bitcoin exchange-traded fund (ETF).
After continued rejection, the asset manager filed a lawsuit against the SEC and the final ruling came in August 2023 in favor of Grayscale. The court found the regulator not approving the application “arbitrary and capricious.”
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
