Digital Currency Group, the parent of several crypto firms, filed a complaint on Thursday in the US Bankruptcy Court for the Southern District of New York.
The suit says two subsidiaries, Genesis Global Capital and Genesis Asia Pacific, owe DCG money tied to a $1.1 billion promissory note issued after the 2022 collapse of hedge fund Three Arrows Capital.
DCG claims the note was meant to cover a potential shortfall, but that Genesis later profited from recoveries and must return excess payments.
The promissory note and its purpose
DCG says it issued a 10-year note in June 2022, and the paper was meant as a backstop in case Genesis Asia Pacific faced an equity gap after 3AC defaulted on loans.
The parent firm says the note was a precaution to shore up Genesis’s balance sheet while the fallout played out. That is the core of DCG’s case now.
The complaint accuses the Genesis entities of walking away with large gains. DCG notes that crypto prices later rose and that Genesis sold collateral recovered from 3AC. Those sales, DCG says, produced “hundreds of millions of dollars” in gains.
The filing argues that these recoveries more than covered any earlier shortfall, and that Genesis owes DCG the excess.
Genesis pushes back
Genesis has fought back in court before, like in May, when it sued DCG and other affiliates, accusing them of fraud and secret transfers and seeking $3.3 billion.
Counsel for Genesis called DCG’s latest claims meritless and inconsistent with prior agreements. They pointed to past distributions already made and said the parents’ position contradicts earlier documents and statements to the court.
The Ripple effect of 2022’s crash
The complaint places these events in the wider context of the 2022 market rout. That crisis followed several shocks, including the Terra collapse. The downturn caused liquidity problems across the sector and set off a chain of bankruptcies, including FTX and others.
DCG’s filing notes that even if 3AC had not defaulted, the later market shock in November 2022 would still have left Genesis exposed.
How DCG describes the recoveries
In its papers, DCG says Genesis used 3AC collateral, including shares tied to Grayscale’s Bitcoin Trust, and that those assets rose in value as crypto prices recovered.
DCG alleges that Genesis recovered nearly $2.8 billion on about $2.36 billion in loans to 3AC, and that those amounts exceeded the $1.1 billion hole the note was meant to plug.
The filings show a messy legal fight that stretches beyond one promissory note. DCG wants repayments and legal relief tied to the note. Genesis seeks damages and has accused DCG of taking funds improperly before Genesis filed for bankruptcy. Both sides have advanced sharp claims that will now be tested in court.
Also Read: Digital Currency Group pays off a whooping $700m of debt with Genesis
