DCG Sues Genesis Over $1.1 Billion Promissory Note Amid Bankruptcy Challenges

By: Eva Baxter

Digital Currency Group (DCG), a prominent venture capital firm and parent to several blockchain and cryptocurrency ventures, has embroiled its subsidiary, Genesis, in a legal dispute over an outstanding $1.1 billion promissory note. The case, filed in the U.S. Bankruptcy Court for the Southern District of New York, involves Genesis Global Capital and Genesis Asia Pacific, both of which are subsidiaries of DCG. DCG claims that these entities owe more than $105 million, along with interest, stemming from a financial backstop provided during the crypto market turbulence in 2022.

The legal battle traces back to the implosion of the hedge fund Three Arrows Capital (3AC) in 2022. At that time, 3AC defaulted on a substantial $2.36 billion margin call, significantly affecting Genesis Asia Pacific, a DCG-owned entity. In an effort to stabilize the business, DCG issued a $1.1 billion promissory note to Genesis. The circumstances have since changed, and DCG argues that Genesis has profited beyond the original value of the note due to recoveries tied to 3AC's collateral, reducing the principal balance and leaving a $105 million outstanding debt.

Genesis, which had halted lending activities towards the end of 2022 and filed for Chapter 11 bankruptcy protection in early 2023, emerged from its restructuring efforts later in the year. It started distributing approximately $4 billion to its creditors, who experienced varied recovery amounts based on asset types. As an equity holder, DCG stands as one of the last to be reimbursed under the bankruptcy plan, leading to its filing of objections against portions of the plan it deemed unfair.

This lawsuit is part of broader tensions between DCG and Genesis, with the former asserting it had made extraordinary efforts to keep the lender afloat during a period of market distress. The dispute underscores the ongoing complexities and strained dynamics between the two companies, amidst Genesis’s efforts to recover from its previous challenges and meet obligations to its creditors. This unfolding legal confrontation highlights the intricacies of financial relationships and the far-reaching impacts of the interconnected crises within the crypto sector.