Three Gemini Earn users have accused Genesis Global Capital of breaching a contract and subsequently filed a class arbitration claim with the American Arbitration Association. In addition, the three users claim that all transactions “constituted unregistered sales of securities” and must therefore be set aside.
A sham transaction
A request for class arbitration in a case between three Gemini Earn users and Genesis Global Capital (GGC), its parent company Digital Currency Group (DCG) and Genesis Global Trading, has been filed with the American Arbitration Association (AAA). According to a statement released by Silver Golub & Teitell, the law firm representing the plaintiffs. DCG and related entities are accused of violating the terms of the so-called Master Agreement.
According to the December 30, 2022 statement of claim, plaintiffs allege the initial breach of contract “when GGC became insolvent in the summer of 2022 but concealed its insolvency from the lenders.“The statement adds that GCC was able to do this by “orchestrating a sham transaction” in which DCG acquired “the right to collect a $2.3 billion debt owed to GGC by the insolvent hedge fund Three Arrows Capital for a $1.1 billion promissory bill due in 2033.“
Genesis Global Capital charged with selling unregistered securities
For the plaintiffs, GCC’s refusal to acknowledge or remedy the insolvency amounts to a breach of contract. In addition, the plaintiffs assert that this alleged insolvency constituted a “event of default that automatically terminated the loans between Petitioners and GGC, thereby triggering GGC’s obligation to return Petitioners’ digital assets“.
The statement adds:
Claimants also allege that GGC further breached the Master Agreement as of November 16, 2022, because GGC refused to return Gemini Users’ digital assets despite Gemini Users’ requests for the return of loaned assets pursuant to the Master Agreement and failed to pay Gemini Earn Users the interest payments due under the Master Agreements at the end of November.
Genesis Global Trading (GGT), a subsidiary of GGC, froze withdrawals and new loans on November 16. According to a company spokesperson, the decision was “taken in response to the extreme market dislocation and loss of industry confidence“. At the time, the spokesperson insisted that the decision had no impact on GGT and its other entities.
Meanwhile, in addition to the breach of contract allegations, plaintiffs also argued that “all transactions entered into under the master agreement constituted unregistered sales of securities“. Accordingly, plaintiffs seek to have the sales contracts rescinded on this basis.