Genesis attempts to recover $689M from Gemini in new lawsuit

A month after both companies were hit with a lawsuit from New York Attorney General Letitia James, Genesis Global has sued Gemini Trust and associated users in an attempt to recover over half a billion dollars.

In a complaint filed in New York bankruptcy court Tuesday, Genesis Global alleges Gemini Trust received more than $689 million in withdrawals in the three months before the crypto lender filed for Chapter 11 bankruptcy.

Gemini, the custodian and authorized agent for Earn users, was the recipient of withdrawals Earn users made during the “bank run” spurred by the spring 2022 market collapse. Up to 232,824 Earn customers pulled money from the platform, the lawsuit alleges.

Earn was a program owned by Gemini and Genesis where customers could lend cryptoassets in exchange for interest. Under their agreement, Genesis acted as the borrower and reinvested crypto assets in order to generate yield. Gemini processed withdrawals.

“As a result of these withdrawals, [Gemini] benefitted at the expense of [Genesis’s] other creditors, and continues to benefit to this day through their retention of the property [Genesis] seeks to avoid and recover here,” the complaint reads.

Genesis filed for bankruptcy in January 2023 after the collapse of several of its counterparties, including exchange FTX.

James announced her lawsuit against Gemini, Genesis and parent company Digital Currency Group (DCG) on Oct. 19.

James’ office alleges Gemini and Genesis Capital conspired on two “fraudulent schemes” with their Gemini Earn product, resulting in investors losing more than $1 billion in November 2022 when withdrawals from the platform were suspended. DCG “coordinated” with the companies to perpetuate the scheme, the complaint alleges. Earn also constitutes an investment contract under the Howey test, James added.

Days after the joint suit was filed, Gemini sued Genesis, alleging that the bankrupt crypto lender owes Gemini roughly $1.6 billion worth of Grayscale Bitcoin Trust (GBTC) shares.

“Genesis has repeatedly taken actions to harm Earn Users and to hinder and delay Earn Users’ recovery of their digital assets,” Gemini said in its complaint.

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