We will post updates as the cases progress to keep those interested in the cases informed of any important developments.
|UPDATE: January 23, 2023|
Today, January 23, 2023, SGT filed a filed a securities class action against Digital Currency Group, Inc. (“DCG”) and DCG founder and chief executive officer Barry Silbert (“Silbert”) in the United States District Court for the District of Connecticut alleging violations of the federal securities laws. SGT’s clients seek to represent two putative classes of individuals and entities who loaned digital assets pursuant to lending agreements to DCG’s wholly owned subsidiary Genesis Global Capital, LLC from February 2, 2021 through November 16, 2022 (the “Class Period”).
The action seeks to hold DCG and Silbert liable in their capacity as “Control Person(s)” pursuant to Section 15 of the Securities Act of 1933, 15 U.S.C. § 77a, et seq. (the “Securities Act”) and Section 20 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. (the “Exchange Act”) for Genesis Global Capital’s alleged violations of the federal securities laws.
The action's complaint alleges that Genesis Global Capital engaged in an unregistered securities offering in violation of Section 5 of the Securities Act by executing lending agreements with SGT’s clients and members of the putative classes that fit the definition of securities without qualifying for an exemption from registration under the federal securities laws.
The complaint also alleges that Genesis Global Capital committed securities fraud through a scheme to defraud prospective and current digital asset lenders by making false and misleading statement that intentionally misrepresented the financial condition of Genesis Global Capital in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder. The scheme to defraud was carried out, according to the Complaint, in order to induce prospective digital asset lenders to loan digital assets to Genesis Global Capital and to prevent existing lenders from redeeming their digital assets.
The Class Action Complaint can be viewed here. The action is titled McGreevy, et al. v. Digital Currency Group, et al., No. 23-cv-00082 (D. Conn.) and is pending before Hon. Stefan R. Underhill, Senior United States District Judge for the District of Connecticut.
|UPDATE: January 19, 2023|
SGT has submitted an Amended Demand for Class Arbitration (the “Amended Demand”) to the American Arbitration Association (“AAA”) on behalf of 19 clients and similarly situated individuals who lent Genesis Global Capital (“Genesis”) digital assets which Genesis refuses to return. SGT’s 19 clients are due digital assets worth over $2 million. The Amended Demand is available here.
On November 16, 2022, Genesis Global Capital, LLC ("Genesis") suspended loan redemptions (i.e., customer withdrawals, meaning that Genesis would not honor lender requests for Genesis to return their digital assets. Genesis took this step despite the Master Digital Asset Loan Agreements (the “Master Agreement(s)”) made between Genesis and the lenders clearly establishing that the digital assets were open term and the digital assets were returnable at lenders’ request at any time, and in no place establishing Genesis' right to unilaterally suspend redemptions.
Genesis’ announcement was followed by a similar announcement from Gemini, who announced that because of Genesis’ suspension, Gemini would not be able to honor withdrawal requests of Gemini Earn users, who had lent digital assets to Genesis via the Gemini platform. Together, these suspensions have, in clear breach of the Master Agreements, left hundreds of thousands of lenders without access to digital assets worth billions of dollars.
Months of negotiations between lenders and Genesis ensued, but have accomplished nothing.
On January 12, 2023, The United States Securities and Exchange Commission charged Genesis and Gemini for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.
|What SGT is doing:|
On December 30, 2022, Silver Golub & Teitell LLP filed a class arbitration (the “Action”) with the American Arbitration Association (the “AAA”) against Digital Currency Group, Inc. (“DCG”) and DCG-owned subsidiary Genesis on behalf of our clients (the “Claimants”) seeking the return of our clients’ digital assets from Genesis and DCG. We filed the demand with AAA, rather than in federal court, because of an arbitration clause in the Master Agreements which called for arbitration to be conducted by AAA according to the AAA Commercial Rules.
The Action alleges that Genesis and its parent DCG unlawfully issued securities (in this case, notes) without complying with the regulatory regime established by the United States securities laws. Specifically, Genesis and DCG did not register the issuance of securities and did not provide investors, such as SGT’s clients, with the proper risk disclosures mandated by law.
Additionally, SGT’s clients allege that Genesis and DCG breached the Master Digital Asset Loan Agreement (the “Master Agreement”) made between Claimants and Genesis when Genesis and DCG concealed Genesis’s insolvency from lenders such as Claimants’ and failed to cure the insolvency with the period allowed for in the Master Agreement. The Action alleges that Genesis and DCG concealed the insolvency in part by orchestrating a sham transaction with its parent company, DCG, whereby DCG “bought” the right to collect a $2.3 billion debt owed to Genesis by insolvent hedge fund Three Arrows Capital for a promissory note of $1.1 billion due in 2033. This transaction, the Action alleges, was not executed at arm’s length and was a paper fiction with no economic reality.
SGT’s clients allege Genesis’s insolvency, failure to cure its insolvency, and continued representations that it was not insolvent breached the Master Agreement and constituted Events of Default which automatically terminated the loans between Claimants and Genesis thus triggering Genesis’s obligation return Claimants’ digital assets.
SGT’s clients therefore seek, on behalf of themselves and those similarly situated:
- Return of Claimants’ digital assets as required by the Master Digital Asset Loan Agreements (the “Master Agreement(s)”) made between Claimants and Genesis;
- Rescission of the Master Agreements made between Claimants and Genesis as provided for under the federal securities laws; and
- damages related thereto; and
- other relief as appropriate, including an award of attorneys’ fees and punitive damages where available.
The case is Hagelstein v. Digital Currency Group, et al, AAA No. 01-22-0005-4467. More information about the case is available on the American Arbitration Association’s class arbitration docket, which can be accessed here. To search for the Action, enter the appropriate information in the search field.
If you lent digital assets to Genesis and cannot get your digital assets back and wish to learn more about your rights and the class arbitration, contact SGT Partner Ian W. Sloss via at email@example.com or submit your information using the form to the right.