Crypto broker Genesis is preparing to file for bankruptcy as soon as this week, according to people familiar with the matter, as the company works towards a deal with creditors after months of wrangling.
A filing would make Genesis the latest crypto casualty to follow the implosion of Sam Bankman-Fried’s FTX exchange, which has sent shockwaves through the digital asset industry.
Genesis and its owner, SoftBank-backed crypto conglomerate Digital Currency Group, have been in negotiations with creditors since mid-November. Genesis owes creditors more than $3bnthe Financial Times previously reported, including $900mn to customers of Gemini, the crypto exchange of Cameron and Tyler Winklevoss, and €280mn to Dutch exchange Bitvavo.
A pre-packaged bankruptcy deal for Genesis is being negotiated with creditors and would include cash and equity in DCG, one of the people said. It could be finalized as soon as this week.
Genesis and DCG did not immediately respond to requests for comment.
Genesis’ troubles began soon after the collapse of FTX. The company, which was one of the biggest lenders in the crypto market, halted customer withdrawals citing “unprecedented market turmoil” and liquidity issues. It has since been scrambling unsuccessfully to find fresh funding.
Negotiations with creditors burst into public this month after Cameron Winklevoss called for DCG’s board to sack its chief executive, Barry Silbert, accusing him of bad faith tactics in negotiations with creditors. Winklevoss’ exchange, Gemini, used Genesis as its main lending partner on a crypto “earn” program that gave retail investors high yields in return for lending out their coins.
A Genesis bankruptcy would be a significant blow for Silbert’s crypto group, which includes trade publication CoinDesk and asset manager Grayscale.
CoinDesk, which also runs one of the largest annual crypto conferences, Consensus, on Wednesday said it had hired Lazard as investment bankers to explore a sale of all or part of the company. CoinDesk has been privately seeking a deal for months.
“Over the last few months, we have received numerous inbound indications of interest in CoinDesk,” chief executive Kevin Worth told The Wall Street Journal.
DCG was founded in 2015 and is backed by investors including SoftBank, Singapore’s GIC and Alphabet’s venture arm CapitalG. The group previously counted former US Treasury secretary Larry Summers and Silver Lake co-founder Glenn Hutchins as senior advisers. Both have stepped down in recent months.
Genesis’ collapse would also trigger the immediate refund of $350mn still due from a loan made by Chelsea FC owner Todd Boehly’s investment group, the FT previously reported, which had backed DCG through senior secured debt.
Last week, the US Securities and Exchange Commission sued Genesis and Gemini over the “Earn” crypto lending programme, saying it was an unregistered securities offering. The product allowed retail investors to lend out their coins via Genesis in return for interest rates as high as 8 per cent.
Gemini stopped the program earlier this month, but retail investors still cannot withdraw their crypto assets, according to the regulator, who said they “have suffered significant harm”.