Digital Foreign money Group (DCG) has escalated its authorized battle with bankrupt subsidiary Genesis World Capital, submitting a countersuit demanding $1.1 billion in promissory observe aid and $105 million in alleged overpayments.
The transfer comes as Genesis pursues over $3.1 billion in damages in opposition to its mum or dad firm by a number of ongoing lawsuits.
Three Arrows Capital Collapse Sparks Company Warfare
The battle traces again to June 2022, when Three Arrows Capital defaulted on $2.36 billion in loans from Genesis.
DCG voluntarily issued a $1.1 billion promissory observe to backstop potential losses from the hedge fund’s collapse.
The observe contained automated discount provisions tied to any recoveries from Three Arrows Capital’s property.
Genesis subsequently recovered practically $2.8 billion from Three Arrows Capital, primarily by GBTC shares that surged from $428.5 million to over $2.1 billion by Could 2024.
DCG claims these recoveries robotically decreased the promissory observe’s principal to zero below the unique settlement phrases.
Regardless of the alleged principal discount, DCG continued making funds totaling $106 million to Genesis below what it calls a “misapprehension” in regards to the observe’s remaining steadiness.
The mum or dad firm now seeks restoration of those funds plus curiosity by 4 authorized counts, together with declaratory judgment and unjust enrichment.
The authorized warfare intensified following Genesis’s chapter submitting in January 2023 after accumulating $3.5 billion in money owed.
Beforehand unsealed courtroom paperwork reveal DCG executives feared Genesis might be handled as their “alter ego” as early as 2022, with CFO Michael Kraines warning about potential company veil piercing situations.
Genesis has mounted its personal offensive, pursuing $2.2 billion in crypto property by Delaware courts and over $1 billion in allegedly fraudulent transfers by the New York chapter courtroom.
The subsidiary claims DCG extracted $450 million in crypto property and $297 million by worldwide transfers whereas Genesis confronted liquidity stress.
The Securities and Change Fee joined the fray in January 2025, fining DCG $38 million for securities violations and former Genesis CEO Michael Moro $500,000 for deceptive traders in regards to the firm’s monetary well being following Three Arrows Capital’s collapse.
The regulatory motion revealed DCG executives knew about over $1 billion in Genesis losses whereas portraying monetary stability.
Company Management and Monetary Engineering Allegations
Inner paperwork launched by Genesis’s Litigation Oversight Committee paint DCG as treating its subsidiary like a “de facto treasury” whereas extracting worth by insider loans and dangerous trades.
Genesis workers described a “tradition of submission” the place they served DCG’s pursuits over their very own operational integrity.
DCG’s danger committee delayed its first assembly for 9 months after formation, with Kraines later joking that the delay made his “future deposition simpler.”
Exterior auditors flagged “materials weaknesses” at Genesis as early as 2020, but the mum or dad firm allegedly continued extracting funds.
The committee alleges DCG orchestrated fraudulent transactions, together with the June 2022 promissory observe and a September round-trip deal designed to masks Genesis’s monetary misery.
Genesis claims it was already bancrupt by the tip of 2021 regardless of carrying $14 billion in excellent loans.
Consulting agency Oliver Wyman warned DCG about Genesis’s monetary vulnerabilities in November 2021, however the mum or dad firm did not implement corrective measures.
As an alternative, inside messages from 2022 point out workers believed Genesis was being “propped up” so DCG might extract money earlier than the collapse.
Notably, Genesis has made substantial progress in returning funds to collectors regardless of the continued authorized battles.
The corporate distributed $2.18 billion to roughly 232,000 customers by Could 2024, together with by a pending $1.8 billion settlement with Gemini Earn contributors.
DCG beforehand settled over $1 billion in debt, together with $627 million owed to Genesis by January 2024, following a November 2023 settlement reached after Genesis sued for mortgage repayments.
The mum or dad firm had defaulted on over $620 million in debt by Could 2023.
Because it stands now, the a number of authorized proceedings proceed as each firms navigate chapter restructuring, regulatory enforcement, and billions in creditor claims stemming from the 2022 crypto market collapse.
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