The corporate family drama continues. Digital Currency Group (DCG) is taking its bankrupt subsidiary, Genesis Global Capital, to court. DCG wants back more than $105 million, plus interest. The big claim? DCG says an earlier $1.1 billion debt is already paid off.
This legal tussle is playing out in the U.S. Bankruptcy Court for the Southern District of New York. It’s the latest twist in a long, messy fight between these two crypto giants.
The Backstory of a Big Debt
The heart of this dispute is a $1.1 billion promissory note. DCG issued this note back in 2022. That was when the crypto market was in freefall, right after the hedge fund Three Arrows Capital (3AC) crashed.
DCG’s goal at the time was to fix a financial hole. Genesis Asia Pacific, a part of Genesis, had a huge gap in its books. This happened because 3AC failed to pay back $2.36 billion it owed. DCG stepped in, calling its move a voluntary act to stabilize Genesis. Crypto prices were low then, in what people called a “bear market.”
But here’s where it gets complicated. DCG claims that later, when crypto prices bounced back, Genesis made “massive gains.” These gains came from assets tied to 3AC. DCG argues these profits were much larger than the original amount of the promissory note. According to their agreement, these gains were supposed to reduce the debt “dollar for dollar.” DCG now states it has fully met its contract duties. They believe the debt is settled.
A spokesperson for DCG said the company “took extraordinary measures to help Genesis in 2022.” Now, they just want the court to confirm the promissory note “was satisfied in full.”
Genesis Fires Back
Genesis isn’t buying DCG’s argument. Luke Barefoot, a partner at Cleary Gottlieb and Genesis’s lawyer, strongly rejected the claims. He called DCG’s lawsuit an “unfounded, improvised, and convenient stance change.” Barefoot thinks DCG is trying to hold onto money from the 3AC distributions.
Barefoot pointed out that DCG’s current position goes against earlier written agreements. It also contradicts statements DCG made in bankruptcy court. Plus, DCG has already transferred over $100 million in distributions.
This new lawsuit adds to an already heavy load of legal actions. In May, the Genesis Litigation Oversight Committee sued DCG. They also sued DCG’s CEO, Barry Silbert, and other executives. That lawsuit aims to get back billions of dollars. The committee claims this money was wrongly taken out in 2022.
A History of Crypto Upheaval
Genesis was just one of many companies hit hard by the wild crypto market of 2022. That year saw major events like the crash of the stablecoin Terra USD. Then came the collapse of the exchange FTX. After these events, Genesis stopped its loan operations. It filed for bankruptcy in 2023 and finished its restructuring a year later.
Under the approved plan, Genesis started giving out about $4 billion in assets to its creditors. How much each creditor gets depends on the type of cryptocurrency. DCG, as a shareholder, is last in line for payments. They have also questioned the bankruptcy plan itself.
Meanwhile, Genesis has also sued its former parent company, DCG, for $2.1 billion. This is to pay back even more clients. This latest case over the $1.1 billion promissory note simply adds another layer of complexity. It’s a relationship already full of lawsuits and claims going back and forth.