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Genesis-DCG Loan Leads to Class Action Arbitration Case from Gemini Clients

In a filing, claimants allege that Genesis breached its Master Agreement when it became insolvent in the summer of 2022, while concealing its insolvency from lenders such as Gemini.

In response to Gemini suspending its Earn redemption programme due to Genesis freezing withdrawals, three Gemini Earn users have filed a request for class action arbitration against Genesis Global Capital and Digital Currency Group.

DCG is also CoinDesk’s parent company.

Class-action arbitration is frequently viewed as an alternative to a class-action lawsuit. It is a dispute resolution process in which a neutral third-party arbitrator resolves disputes between parties. Arbitration is typically informal and non-binding. However, the arbitrator’s decision is final and cannot be appealed, potentially making the process faster and less expensive than a class-action lawsuit.

The claimants contend that Genesis has failed to return their and all other Gemini Earn users’ digital assets as required by the firm’s and users’ Master Agreements.

They claim Genesis first violated the Master Agreement when the company went bankrupt in the summer of 2022 but failed to notify its customers.

They allege that Genesis then engaged in a sham transaction with its parent company, DCG, to conceal its insolvency, exchanging the right to collect a $2.3 billion debt owed to Genesis by the now-insolvent hedge fund Three Arrows Capital in exchange for a $1.1 billion promissory note due in 2033.

The group also claims that Genesis’ Master Agreement effectively creates unregistered sales of securities, and they are attempting to rescind the contracts of sale as well as recover related damages.

In late December, investors Brendan Picha and Max J. Hastings filed a class action lawsuit against Gemini, alleging the exchange engaged in the sale of unregistered securities through its Earn programme.

“When Genesis encountered financial distress in 2022 as a result of a series of crypto market collapses, including FTX Trading Ltd. (“FTX”), Genesis was unable to return the crypto assets it borrowed from Gemini Earn investors,” according to a filing from the Pica and Hastings class action. “[Gemini] refused to honour any further investor redemptions, effectively wiping out all remaining investors, including plaintiffs.”

Late Monday, Gemini co-founder Cameron Winklevoss and DCG CEO Barry Silbert exchanged tweets in which the exchange executive accused Silbert of engaging in “bad faith stall tactics” over plans to resume Genesis withdrawals.

Winklevoss claims that Genesis and DCG owe $900 million to Gemini and its clients, and has given Silbert until January 8 to publicly commit to resolving the issue.

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