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By Geoffrey Smith
Investing.com -- Crypto lender Genesis filed for chapter 11 bankruptcy, ending two months of vain efforts to fill the holes in its balance sheet left by the collapse of hedge fund Three Arrows Capital and exchange FTX.
The lender and broker's filing indicated at least $3.8 billion of liabilities, considerably above the conservative estimates of $3B, that had circulated before its demise.
The development represents a step toward resolution for hundreds of thousands of retail investors whose money has been frozen in Genesis since it suspended withdrawals in November after FTX's implosion. Some 340,000 of those are clients of investment platform Gemini, owned by Cameron and Tyler Winklevoss. Genesis' bankruptcy filing suggests that Genesis owes them some $765 million.
It also sets the stage for a thorough examination of the governance arrangements at Genesis, which the Winklevoss twins have accused of being hollowed out by its owner - Barry Silbert's Digital Currencies Group (DCG). The twins and Silbert have two of the world's largest holdings of crypto assets, at least one of which may have to be used to make Gemini's customers whole.
Prior to the filing, Gemini had been publicly feuding with Silbert for what it saw as stalling on efforts to restructure Genesis' debt. At the same time, some of Gemini's clients had filed a class action lawsuit seeking compensation from the Winklevoss twins. The bankruptcy filing means that both initiatives will essentially be on hold.
“An in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” Genesis's acting CEO Derar Islim said in a statement.
The Winklevoss twins expressed frustration that Silbert and DCG "continue to refuse to offer creditors a fair deal" but said: "The good news is that, by seeking the protection of the bankruptcy court, Genesis will be subject to judicial oversight and be required to provide discovery into the machinations that brought us to this point."
They added that they intend to file suit against Silbert and DCG "imminently."
Analysts noted that Chapter 11 weakens the leverage of Gemini over Genesis as it seeks to recoup its customers' money.
"This action stops the Winklevoss twins' demand for restitution in its tracks," said Frances Coppola, a veteran financial commentator, via social media. "Gemini's claim against Genesis will now be handled by the bankruptcy court, and Gemini might not get all its money back."
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