Gemini Warns Barry Silbert's Digital Currency Group of $630M Default Risk

Mediation is underway to resolve the outstanding issues between DCG, Genesis, and Gemini.

Per an update, Gemini, Genesis, and its parent company Digital Currency Group (DCG), as well as creditor committees agreed to initiate “a 30-day mediation process to drive to a final resolution as soon as possible.”

“The mediation will be narrowly focused on DCG’s economic contribution to the bankruptcy estate for the benefit of all creditors, including Earn users, and is designed to bring resolution to the Genesis bankruptcy plan,” read Friday's memo.

The company further indicated that an order from Bankruptcy Judge Lane to direct the mediation is anticipated to be issued as early as today.

Gemini Earn is Gemini’s now-discontinued high-yield investment service that had Genesis as a primary lending partner before the latter halted withdrawals in November 2022.

For Earn users, Gemini said, two important dates to keep in mind are May 8, before which two mediation meetings are planned to take place, and May 9 to 11, the period during which DCG is expected to pay the Genesis bankruptcy estate a sum of $630 million.

“If DCG is unable to pay and/or restructure its debt, DCG risks defaulting on its obligations. So while the mediation is scheduled for up to 30 days, the parties are expected to work expeditiously towards agreement in the immediate window,” Gemini said in a statement.

The crypto exchange added that “it is supportive of mediation and working with the parties to bring this to a conclusion.”

According to Gemini, the next conference on the status of the matter with the court will be held on May 4.

Gemini and Genesis did not immediately respond to Decrypt's request for comment.

A DCG spokesperson told Decrypt that the organization remains "committed to doing the deal that all parties agreed to, and DCG will continue to honor its commitments on any outstanding obligations.”

What was the Gemini, Genesis saga?

The update comes in the wake of Genesis submitting a motion for the appointment of a sitting bankruptcy judge in the Southern District of New York to act as a mediator in its disputes against its creditors, including Gemini.

According to court documents, recent discussions have emphasized the need for a mediator to facilitate the resolution of a critical matter in the Chapter 11 proceedings: "the amount, form, timing and other terms and conditions of DCG’s contribution to the Debtors’ reorganization plan."

The filing further noted that DCG owes approximately $630 million to Genesis Global Capital in connection with certain fixed-term loans that are due during the second week of May 2023.

Commenting on last week’s developments, DCG said it couldn’t explain the motives behind the Genesis’ move, adding that “our understanding is that a subset of creditors has decided to walk away from the prior agreement.”

Following Genesis Global Holdco LLC and its two lending subsidiaries filing for Chapter 11 bankruptcy in January this year, Gemini issued a warning to sue both DCG and its CEO, Barry Silbert, if they did not present a plan to repay the $900 million loan that Gemini had extended to the crypto lender.

The two sides reached an agreement “in principle” in February though.

The terms of the deal entailed DCG exchanging its existing $1.1 billion note due in 2032 for convertible preferred stock and refinancing its current 2023 term loans in two tranches, with an aggregate total value of about $500 million, payable to creditors.

Later that same month, DCG also confirmed plans to turn its Genesis Global Trading equity over to Genesis Global Holdco to eventually sell both companies and pay back clients.