Digital Currency Group Sues Subsidiaries Over $1.1B Promissory Note

Replace (Aug. 15 at 11:40 pm UTC): This text has been up to date to incorporate an announcement from Genesis’ counsel.

Enterprise capital agency Digital Forex Group (DCG), the guardian firm of many entities tied to cryptocurrency and blockchain, has filed a grievance towards two of its subsidiaries over a promissory observe to protect towards the 2022 default of Three Arrows Capital (3AC).

In a Thursday submitting within the US Chapter Court docket for the Southern District of New York, DCG alleged that Genesis World Capital and Genesis Asia Pacific, each underneath the enterprise capital agency, owed their guardian firm overpayments based mostly on recoveries from 3AC.

The grievance mentioned that DCG issued a $1.1 billion promissory observe to the Genesis entities, which profited by “a whole lot of hundreds of thousands of {dollars}“ with out struggling any loss from the default of 3AC in 2022.

In response to DCG, the corporate issued a 10-year promissory observe to Genesis World Capital in June 2022 as a safeguard towards any potential “gap” in Genesis Asia Pacific’s fairness that might have been brought on by the collapse of 3AC, one in every of Genesis’ debtors. DCG alleged that relatively than going through important liquidity issues from 3AC, Genesis “reap[ed] a large windfall” and was obligated to return funds made on the promissory observe. 

The current grievance was simply the most recent authorized entanglement between DCG and Genesis over the collapse of 3AC. In Might, Genesis filed lawsuits towards its guardian firm, associates and CEO Barry Silbert, alleging fraud, insider enrichment and hid transfers. The corporate sought $3.3 billion over DCG allegedly withdrawing funds earlier than Genesis’ chapter. 

“DCG’s unfounded, haphazard and handy about-face to withhold 3AC distributions is meritless,” mentioned Luke Barefoot, a associate at regulation agency Cleary Gottlieb and counsel to Genesis, in an announcement to Cointelegraph. “It flatly contradicts the written agreements, DCG’s representations to the chapter courtroom, and the truth that DCG already handed over $100M+ in distributions.”

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The $1.1-billion promissory observe talked about within the submitting was issued in response to the collapse of 3AC, with Genesis probably going through a shortfall in its fairness for the second quarter of 2022.

Nonetheless, DCG famous that “cryptocurrency costs finally recovered,” permitting Genesis to make use of 3AC’s collateral — shares of Grayscale’s Bitcoin Belief, which elevated in worth with the worth of the cryptocurrency — to revenue from the loans. 

“[T]he incremental quantities realized by Genesis after issuance of the Notice had been, based mostly on the pleadings filed by Genesis on this Court docket in search of approval of that transaction, excess of adequate to beat the prior $1.1 billion collateral shortfall—and, on info and perception, allowed Genesis to revenue from [3AC]’s default by recovering practically $2.8 billion on the unique $2.36 billion in [3AC] Loans,” mentioned the submitting.