Barry Silbert, founder and CEO of crypto conglomerate Digital Currency Group (DCG), stands to potentially gain up to $1 billion through a sophisticated maneuver involving the bankruptcy system. 

This comes in the wake of the collapse of Genesis, a crypto lending operation tied to DCG, which has left many investors facing significant losses, according to a report by New York Magazine. 

Eric Asquith was one of the victims who ended in a nightmare scenario as his and his family’s savings of $1,052,000 vanished in the aftermath of Genesis’s bankruptcy declared on January 18, 2023. 

Asquith had invested in GUSD, a stablecoin pegged to the dollar, through the Gemini platform, operated by Tyler and Cameron Winklevoss. 

He was lured by the promise of a safe, stable investment offering returns far above those available from traditional banks.

However, the reality was different. 

Unbeknownst to Asquith and other investors, their funds had been redirected to Genesis, a company under Silbert’s umbrella, and further loaned to high-risk ventures and hedge funds engaged in speculative bets. 

This opaque financial arrangement crumbled with the bankruptcy of Genesis, part of a broader downturn that affected numerous crypto businesses, including the empire of Sam Bankman-Fried.

Barry Silbert Could Impair Payout to Victims

In February, Gemini announced that it reached a settlement in principle with Genesis, detailing a plan to distribute $1.8 billion to Earn users.

Furthermore, the crypto bull market of 2024 made it possible to pay back creditors not some fraction of what they invested but even higher, thanks to surging crypto prices. 

This turn of events was hailed as a potential landmark in the recovery efforts following crypto-related collapses, with investors like Asquith hoping to return their funds. 

However, Silbert’s alleged exploitation of the bankruptcy system threatens to derail this positive outcome, the report said. 

Employing a controversial interpretation of bankruptcy law, Silbert aims to minimize the payout to victims, asserting rights that could enable him to retain a substantial portion of the funds that would otherwise be destined for the investors. 

This strategy, known among the victims as “the Barry Trade,” has sparked outrage and disillusionment, casting Silbert in a contentious light.

“There’s a lot of speculation that Barry Silbert put Genesis into bankruptcy on purpose, given his expertise in bankruptcy and knowledge of the process and what he can obtain as a result,” Asquith told New York Magazine. 

Genesis / DCG looks like a modern day Enron.

And the NYAG is going after them

Can’t wait for the mini-series to come out 🍿 https://t.co/aM2qec0QZU

— Ram Ahluwalia CFA, Lumida (@ramahluwalia) February 26, 2024

Silbert’s Background in Bankruptcy

Silbert’s background, marked by an early acquaintance with the bankruptcy system and a successful career in finance and cryptocurrency, adds a layer of complexity to the situation. 

His past endeavors, including the founding of SecondMarket and the Grayscale Bitcoin Trust, highlight a deep engagement with financial markets and an ability to navigate their intricacies to his advantage.

Silbert’s defense in the Genesis bankruptcy case hinges on the argument that the bankruptcy code mandates the valuation of claims in U.S. dollars as of a specific date, which coincidentally aligned with market lows for cryptocurrencies like Bitcoin. 

This stance has led to frustration and disillusionment among the victims.

“I’ve been in the crypto space for a long time, and I’ve always idolized Barry,” one of the creditors said. “After all this? I cannot stand him.”

During a hearing on March 18, presided over by Judge Sean H. Lane, legal representatives for the creditors, Genesis, and Gemini argued against Silbert’s viewpoint, advocating for a more equitable valuation of digital assets akin to unique collectibles. 

Brian Rosen, representing Genesis, drew an analogy to rare baseball cards, arguing for the full value of the assets rather than a diminished valuation. 

However, DCG’s attorneys, including Jessica Liou, countered by labeling the victims’ arguments as unsupported by bankruptcy law, warning that any decision favoring the victims might be overturned on appeal, further delaying restitution.

The ongoing legal battle also contains a lawsuit by the New York Attorney General (AG), with potential outcomes that could significantly affect Silbert’s ability to retain the disputed funds. 

Should Silbert and DCG fail to extricate themselves from the AG’s lawsuit, the state could potentially claim the funds for restitution.

The crypto community awaits a decision in April.