Genesis Global Holdco LLC, a bankrupt crypto lender, is taking legal action against Gemini Trust Co., in an effort to recover nearly $690 million that Genesis claims was withdrawn the crypto platform in the months leading up to the company’s Chapter 11 filing in January.
Withdrawals Under Scrutiny
According to a complaint filed in a New York bankruptcy court on Tuesday, Genesis alleges that the withdrawals made Gemini were unprecedented and resembled a “run-on-the-bank” that came at the expense of the crypto lender’s other creditors.
Disputes Escalate
The lawsuit further intensifies the disputes in the bankruptcy proceedings between Genesis and Gemini, as the two entities had previously collaborated on the Gemini Earn program. This program allowed clients to earn approximately 8% interest on their digital-asset holdings. Last month, Gemini filed a lawsuit against Genesis in an attempt to determine the rightful ownership of shares in the Grayscale Bitcoin Trust, valued at nearly $1.6 billion.
Gemini’s Response
Gemini lawyers have not yet responded to the latest allegations made Genesis in the lawsuit.
Chapter 11 Legal Power
Under Chapter 11, failed companies such as Genesis have the legal ability to recover funds that were paid out in the months leading up to the bankruptcy, even if the beneficiaries did nothing wrong. This is intended to prevent certain creditors from receiving a windfall simply because they were able to retrieve their funds from a failed business while others could not.
Genesis’ Intentions
In filing the lawsuit, Genesis stated its aim to place Gemini in the same position as its other creditors and correct the unfairness resulting from the significant withdrawals prior to the bankruptcy filing. Documents accompanying the complaint detail withdrawals totaling about $689.3 million between Oct. 20, 2022, and early Nov. 11, 2022.
Timing of Withdrawals
The withdrawals cited in the lawsuit took place before Genesis suspended all lending and borrowing activities on its platform on Nov. 16. Genesis also asserted that it was already insolvent at the time the transfers were made.
Legal Proceedings
The bankruptcy case is officially titled Genesis Global Holdco, LLC, 23-10063, and is taking place in the US Bankruptcy Court, Southern District of New York (Manhattan).
This news article is based on information originally reported Bloomberg.
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