The newly not sealed court documents suggest that the digital currency group (DCG) knowingly used its subsidiary in bankruptcy, Genesis, as a private cash basin.
This would have been done despite repeated warnings on worsening the financial situation of Genesis.
A complaint filed by the Genesis litigation monitoring committee (LOC) before the DELAware Court of Chancellery alleys that DCG leaders were aware of the legal risks linked to their control over Genesis but continued to extract its value through internal loans and strategic deformations.
The 250-page unresolved complaint includes internal emails and service notes dating from 2020, many of which suggest that DCG has exploited Genesis as a fully controlled subsidiary to channel funds for its own advantage.
At the heart of allegations is the assertion that Genesis was undercapitalized, lacked risk controls and induced the public induced during the key periods of market volatility, including after the collapse of three capital arrows (3AC) and the fall of the FTX.
Details of the pursuit Internal strategy warnings and risk memos
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The file underlines how the financial officer of the DCG chief Michael Kraines reported the legal exhibition in a memo of strategy in 2022, warning that creditors could seek to unravel the business veil and to hold DCG responsible for “the alter ego” of Genesis.
In the same document, Kraines described Genesis as “100% owned and controlled by DCG” and warned that this could cause measures of great creditors.
Despite these warnings, internal communications show that the DCG has delayed the implementation of risks monitoring and used Genesis as a financial instrument to maintain its liquidity.
The documents claim that instead of attacking the fragile state of Genesis, DCG and its managers have intensified internal transactions.
Barry Silbert, CEO of DCG, is accused of qualifying Genesis as “de facto treasure” and using it to finance other parts of the group’s operations.
At one point, the employees would have described the internal culture of Genesis as submitted, noting that they were under pressure to prioritize the financial needs of DCG.
False public statements and contested transactions under surveillance
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The complaint also claims that after the collapse of 3AC in 2022, Genesis was invited to minimize his exhibition and join a fixed story.
Internal scripts have been distributed to staff to provide uniform public messages, while managers continued to assert the company’s stability.
Silbert would also have amplified these complaints through social media, strengthening a false feeling of security for retail and institutional customers.
Two financial transactions are in particular attention. One implies a note to order published on June 30, 2022, while the other details a round-trip agreement concluded in September the same year.
The two are disputed as fraudulent transfers, which would have been intended to hide financial distress and delay the action of creditors.
Genesis is now looking to recover more than $ 3.3 billion from DCG, Barry Silbert and other executives through multiple legal paths.
Parallel proceedings, reimbursement and regulatory pressure support
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Genesis’ legal action takes place in the courts.
In Delaware, the company continues more than $ 2.2 billion in cryptographic assets, including Bitcoin and Ethereum.
A separate New York trial aims to recover more than a billion dollars in alleged fraudulent transfers – $ 450 million at DCG and $ 297 million on its international arm.
Additional $ 34 million in tax -related payments are also disputed as illegitimate.
The financial collapse of Genesis was launched by the failure of 3ac and worsened by the disappearance of FTX. The company deposited the bankruptcy of chapter 11 in January 2023, listing debts of more than $ 3.5 billion.
Although a restructuring plan was finalized in August 2024, the tension with DCG remains unresolved. DCG was lacking on more than $ 620 million in bonds, which prompted Genesis to continue reimbursement, including 4,550 BTC.
Despite the challenges, Genesis returned $ 2.18 billion to more than 232,000 customers, in particular by a regulation awaiting $ 1.8 billion with Gemini users.
However, regulatory challenges persist. The Committee Futures Trading Commission (CFTC) continues the Gemini for compliance violations, with a trial scheduled for January 2025.
Earlier this year, the SEC accused Genesis and DCG from fraud to investors. DCG has since agreed to pay a settlement of $ 38 million.
While Genesis continues its claw efforts, DCG remains under surveillance for its management of intersocated finances and alleged efforts to mislead investors in the last months of the company before bankruptcy.
