Venture capital firm Digital Currency Group (DCG) has launched fresh legal action against two of its subsidiaries, intensifying the ongoing fallout from the collapse of Three Arrows Capital (3AC). In a filing to the US Bankruptcy Court for the Southern District of New York, DCG alleged that Genesis Global Capital and Genesis Asia Pacific profited unfairly from a $1.1 billion promissory note tied to the 2022 default of 3AC. The complaint argues that instead of suffering losses, the Genesis entities received “hundreds of millions of dollars” in gains, creating an obligation to return overpayments to their parent company. Background to the Promissory Note DCG issued the 10-year note in June 2022 to cover a potential equity shortfall in Genesis Asia Pacific following 3AC’s failure to meet obligations. At the time, concerns loomed that the collapse of 3AC — one of Genesis’ largest borrowers — would trigger significant liquidity issues. However, according to DCG, cryptocurrency markets later rebounded, increasing the value of collateral held against the loans. That included shares in Grayscale’s Bitcoin Trust, which surged alongside Bitcoin’s recovery. DCG claimed Genesis not only avoided financial damage but ultimately profited from 3AC’s collapse. “[T]he incremental amounts realized by Genesis after issuance of the Note were … far more than sufficient to overcome the prior $1.1 billion collateral shortfall — and, on information and belief, allowed Genesis to profit from [3AC]’s default by recovering nearly $2.8 billion on the original $2.36 billion in [3AC] Loans,” the filing said. Genesis Pushes Back Genesis, however, has rejected the latest complaint, accusing DCG of attempting to rewrite history. “DCG’s unfounded, haphazard and convenient about-face to withhold 3AC distributions is meritless,” said Luke Barefoot, partner at Cleary Gottlieb and counsel to Genesis. “It flatly contradicts the written agreements, DCG’s representations to the bankruptcy court, and the fact that DCG already handed over $100M+ in distributions.” This legal clash follows earlier suits filed by Genesis against DCG, its affiliates, and CEO Barry Silbert. In May, Genesis sought $3.3 billion in damages, accusing its parent company of fraudulent transfers and insider enrichment in the lead-up to bankruptcy. The Wider Market Context The 3AC default was one of several shocks that rattled crypto markets in 2022. The collapse of the Terra ecosystem triggered a cascade of failures, leaving investors with heavy losses and exposing vulnerabilities across the industry. That same year, FTX — once one of the largest exchanges — imploded in spectacular fashion, with executives later indicted for fraud. DCG’s filing referenced the wider turmoil, noting that even without 3AC’s collapse, Genesis would have struggled to survive. “Even had [3AC] not defaulted in June 2022, [Genesis Global Capital] would not have had sufficient capital to withstand the unexpected and devastating market rout that followed the collapse of FTX in November 2022,” the filing stated. Genesis halted withdrawals that month before officially declaring bankruptcy on January 19, 2023. Restructuring and Recovery After months of proceedings, Genesis completed its restructuring in August 2024. The plan involved distributing approximately $4 billion to creditors and other affected parties. While this was seen as a significant step toward closing one of the darkest chapters in crypto lending, disputes between Genesis and DCG remain unresolved. DCG is now seeking more than $105 million plus interest from its subsidiaries, arguing the terms of the promissory note require repayment given the profits made from 3AC’s collateral. Ongoing Legal Battle The latest filing highlights the complex financial web left by crypto’s 2022 crash, with companies still grappling over responsibility for billions lost and gained. For DCG and Genesis, the courtroom has become the battleground for settling questions of accountability. The outcome of this case could have major implications, not just for the firms involved but also for creditors seeking clarity on how recoveries from failed borrowers are handled. With tensions high, the dispute underscores how the ripple effects of 3AC’s collapse and the wider market downturn continue to haunt the sector.
