The case of Gemini’s savings program customer funds, which had been frozen for a year and a half, is finally moving toward resolution.
On May 17, Judge Sean H. Lane approved Genesis’ Chapter 11 bankruptcy plan. The decision allows the company to return customer funds frozen on its platform from November 2022. The platform is expected to return approximately $3 billion to creditors in cash and cryptocurrency assets.
Gemini plans to begin refunding Earn members refunds by the end of May, according to court documents.
The decision to pay was made by a judge who dismissed a lawsuit filed by Digital Currency Group (DCG) and special interest group Genesis Crypto Creditors. DCG previously argued that all claims should be valued in U.S. dollars when the company files for bankruptcy in January 2023.
where it all began
In 2020, Gemini and Genesis agreed on mutually beneficial terms of cooperation. The exchange offered its US customers the ability to earn interest on their cryptocurrency assets, which Genesis paid for. The Earn program has been in full operation since February 2021.
Gemini acted as an intermediary between Genesis and individual investors.
However, in November 2022, the cryptocurrency community faced the collapse of the FTX exchange and a significant decline in the prices of Bitcoin (BTC) and major altcoins. Users were promised returns of up to 13%, but the subsequent market downturn in 2022 caused problems and Genesis Global Capital was forced to freeze customer assets.
On November 16, 2022, Genesis notified customers of a temporary repayment suspension and issued new loans due to market turmoil and the collapse of FTX. This forced Gemini to limit customer payments using certain Gemini Earn programs. Genesis’ debt to these customers on the Gemini platform amounted to $900 million. At the time, the total hole in the company’s balance sheet exceeded $1 billion.
Gemini brings conflict with renewed vigor
Thanks to Gemini co-founder Cameron Winklevoss, Genesis’ problems were largely publicized. He accused DCG CEO Barry Silbert of “unfair tactics” and delayed a decision to return $900 million to exchange customers. He also wrote an open letter to the head of DCG, claiming that Gemini had yet to receive an agreement to repay this debt.
“Ernire users are tired. They are scared. Many people are facing extreme hardship right now. But despite all they had to endure, they were incredibly patient and supportive. But there is a limit to what they can take.”
Cameron Winklevoss, Gemini Co-Founder
Winklevoss, representing 340,000 users of Gemini and Gemini Earn services, has asked DCG’s board to remove Silbert because DCG has failed to provide payments to creditors under his leadership.
The official digital currency group X account posted a response to the Gemini co-founder’s open letter.
The company confirmed that it will take every step to legally protect its interests and maintain ongoing dialogue with Genesis creditors.
“DCG will continue a productive dialogue with Genesis and its creditors with the goal of finding a solution that suits all parties.”
DCG Statement
Litigation with the SEC
In January 2023, the Securities and Exchange Commission (SEC) sued Genesis Global Capital LLC and Gemini Trust Company LLC over Gemini Earn.
The SEC filed a civil lawsuit in Manhattan federal court, alleging that Genesis should have registered Gemini Earn and provided customers with detailed financial information about the program.
However, Gemini and Genesis argue that the Gemini Earn Program should not be classified as a securities offering. The creators of the project are confident that this is a simple loan contract and that the so-called investment contracts were not sold on the secondary market. Gemini co-founder Tyler Winklevoss also condemned the regulator’s allegations.
Because the transactions could be considered loans, the company asked the court to either dismiss the regulator’s lawsuit or issue an alternative decision to overturn the SEC’s request for a permanent injunction against the program.
In November 2023, Genesis decided to sue Gemini for $689 million. Genesis lawyers determined that the exchange’s management’s actions caused damage to other creditors and sought justice by filing a lawsuit against the exchange in New York Bankruptcy Court.
final settlement
In February, Gemini executives announced that the exchange had closed with Genesis’ bankruptcy settlement. Once approved, all Gemini Earn program participants can return 100% of their digital assets.
Last week, a court approved Genesis’ plan to repay its debts to creditors. The court also dismissed the objection, finding that Genesis’ parent company had no legal basis to challenge the compensation plan.
What will happen to Genesis after the court’s ruling?
Simply put, the court ruled that the value of the debtor’s assets was insufficient for DCG to realize a financial benefit as a shareholder after repaying the unsecured debt. Judging by the size of the creditors’ claims, DCG, as a public company shareholder, suffered billions of dollars in financial losses even though DCG’s proposed valuation method had been used in the court valuation.
Since Genesis will use up nearly all of its bankruptcy assets to pay its debts to senior creditors, the chances of DCG receiving a payment are virtually zero. Therefore, the court’s decision leaves DCG with no compensation and no possibility of recovery.