© Reuters. FILE PHOTO: A representations of cryptocurrencies in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Dietrich Knauth
NEW YORK (Reuters) -Crypto lender Genesis Global on Tuesday sued partner Gemini Trust Co, seeking to recover more than $689 million that customers of the companies withdrew during a “run on the bank” that caused Genesis to collapse into bankruptcy.
Genesis in the lawsuit said up to 230,000 users in the two companies’ “Earn” investing program withdrew more than half of billion dollars from the crypto lending platform in the 90 days before it filed for bankruptcy in January.
U.S. bankruptcy law allows those withdrawals to be clawed back so Genesis can make a fairer redistribution among all of its creditors, according to the lawsuit, which was filed in federal bankruptcy court in New York.
Gemini said on Wednesday Genesis should fully repay customers, rather than attempting to claw back funds from users who made withdrawals.
“This attack on Earn Users is a new low, even for Genesis,” Gemini said in a statement.
Under the companies’ operating agreements, Genesis borrowed crypto assets from Earn customers, re-invested the assets and paid interest to customers. Gemini acted as custodian, processing deposits and withdrawals and taking a cut from payments by Genesis to Earn users.
Genesis has faced outside scrutiny from the U.S. securities regulators and internal divisions among participants in the “Earn” program since filing for bankruptcy.
Genesis is moving ahead with a bankruptcy liquidation that would return some cryptocurrency to customers without fully resolving those competing legal claims.
The U.S. Securities and Exchange Commission sued Genesis, its parent company Digital Currency Group (DCG) and Gemini in January. New York Attorney General Letitia James in October filed a lawsuit alleging the three companies defrauded investors out of more than $1 billion.
Gemini, run by the Winklevoss twins best known for their legal battle against Meta Platforms (NASDAQ:) CEO Mark Zuckerberg, had previously sued DCG over the failure of the companies’ crypto lending partnership and sued Genesis for failing to return shares in a bitcoin trust that it had pledged as collateral on the Gemini Earn loans.
Genesis has also sued DCG over $600 million in unpaid loans made to the parent company.
Genesis Global filed for bankruptcy in January after the collapse of key counterparties including FTX caused it to freeze customer redemptions in November 2022.
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