Crypto firms have a rough start to 2023 with layoffs, layoffs and a lawsuit

The fallout from the collapse of cryptocurrency exchange FTX and criminal charges against its founder Sam Bankman-Fried weighed heavily on the industry this week. Affected companies include Genesis Global Capital, which has laid off staff, and Silvergate Bank, which specializes in cryptocurrencies, has seen a sharp drop in its deposits.

On Tuesday, Bankman-Fried pleaded not guilty to eight charges, including wire fraud and money laundering conspiracy. The 30-year-old is accused of stealing deposits from FTX clients to support his hedge fund Alameda Research, buy real estate and donate millions of dollars to political causes.

Another cryptocurrency entrepreneur, Alex Mashinsky, the founder and former CEO of Celsius Network, also faced a legal battle on Thursday. A new lawsuit filed by the New York Attorney General alleges that Mashinsky defrauded investors by hiding the failing health of his now-bankrupt cryptocurrency lending platform.

While Mashinsky was CEO between 2021 and 2022, Celsius made about $1 billion in loans to Alameda Research, according to the suit.

The civil suit seeks to stop Mashinsky from doing business in New York and to award him damages for violating state laws.

“This serves as a wake-up call to other founders of such entities,” said Todd Phillips, founder of Phillips Policy Consulting LLC.

Meanwhile, Silvergate Capital Corp reported a sharp drop in cryptocurrency-related deposits in the fourth quarter on Thursday, as investors spooked by the collapse of FTX pulled more than $8 billion, sending the bank’s shares down more than 43%.

A U.S. attorney told a bankruptcy court Wednesday that prosecutors seized the U.S. bank accounts at Silvergate and Farmington State Bank of the Bahamas-based business branches of FTX, known as FTX Digital Markets.

Accounts at Silvergate Bank and Farmington State Bank, which does business as Moonstone Bank, contained about $143 million, according to court documents.

Silvergate also said it will cut its workforce by 40%, or about 200 employees, to control costs as the industry downturn deepens. Genesis also plans to cut its workforce by 30% in a second round of layoffs in less than six months, according to a person familiar with the matter.

Genesis, which trades digital assets for financial institutions such as hedge funds and asset managers, announced in November that its cryptocurrency lending arm would stop making new loans and block customer withdrawals, citing the unrest. of the market caused by the bankruptcy of FTX.

The layoffs were first reported by The Wall Street Journal, which also said Genesis is considering filing for Chapter 11 bankruptcy. The company is working with investment bank Moelis & Co to evaluate its options. , the report said, citing people familiar with the matter.

Crypto exchange Gemini, which had a crypto lending product in partnership with Genesis, and Genesis’ other creditors are trying to find a solution to avoid a similar situation from FTX’s rapid descent into bankruptcy.

Cameron Winklevoss, who founded Gemini with his twin brother, on Monday accused Barry Silbert, CEO of Genesis’ parent company Digital Currency Group, of “bad faith stalling tactics” and asked him to commit to liquidating 900 million assets of disputed customers from January 8.

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