Genesis Global, a crypto lending platform, has taken legal action against its partner, Gemini Trust Co, in an attempt to recover over $689 million.
This substantial sum was withdrawn by customers during a financial crisis, leading to Genesis’s bankruptcy.
The lawsuit alleges that up to 230,000 users participating in the “Earn” investment program withdrew more than half a billion dollars from the platform in the 90 days preceding the bankruptcy filing.
According to U.S. bankruptcy law, these withdrawals can be clawed back to ensure a fair distribution among all creditors.
In response, Gemini Trust Co has asserted that Genesis should prioritize repaying its customers instead of attempting to recoup funds from those who made withdrawals.
Gemini criticized Genesis’s actions, calling them a “new low.”
Under their operating agreements, Genesis borrowed crypto assets from Earn customers, reinvested the assets, and paid interest to customers.
Gemini, on the other hand, acted as a custodian, handling deposits and withdrawals while taking a portion of the payments made by Genesis to Earn users.
Genesis has been under scrutiny from both external regulators and internal disputes among participants in the “Earn” program since declaring bankruptcy.
Despite ongoing legal disputes, Genesis is moving forward with a bankruptcy liquidation process that aims to return some cryptocurrency to its customers, although it may not fully resolve the various legal claims.
The U.S. Securities and Exchange Commission (SEC) previously sued Genesis, its parent company Digital Currency Group (DCG), and Gemini in January.
In October, the New York Attorney General, Letitia James, filed a lawsuit alleging that these three companies had defrauded investors of more than $1 billion.
Gemini, led by the Winklevoss twins, who are best known for their legal battle against Meta Platforms CEO Mark Zuckerberg, had previously sued DCG over the failure of their crypto lending partnership.
Additionally, Gemini sued Genesis for failing to return shares in a bitcoin trust that had been pledged as collateral for Gemini Earn loans.
Genesis has also initiated a lawsuit against DCG over $600 million in unpaid loans to the parent company.
Genesis Global filed for bankruptcy in January following the collapse of key counterparties, including FTX, which led to the suspension of customer redemptions in November 2022.