On Thursday, the crypto industry’s woes continued, with plummeting deposits, layoffs, and a lawsuit adding to the turbulence of 2022, which was dominated by falling prices and high-profile bankruptcies.
The fallout from the collapse of cryptocurrency exchange FTX, as well as criminal charges filed against its founder, Sam Bankman-Fried, weighed heavily on the sector this week. Among those affected were Genesis Global Capital, which laid off employees, and the crypto-focused Silvergate Bank, which reported a significant drop in deposits.
Bankman-Fried pleaded not guilty on Tuesday to eight criminal charges, including wire fraud and money laundering conspiracy. The 30-year-old is accused of stealing FTX customers’ deposits and using them to fund his Alameda Research hedge fund, purchase real estate, and donate millions of dollars to political causes.
Alex Mashinsky, the founder and former CEO of Celsius Network, was also involved in a legal battle on Thursday. Mashinsky is accused of defrauding investors by concealing the failing health of his now-bankrupt cryptocurrency lending platform, according to a new lawsuit filed by New York’s attorney general.
According to the lawsuit, Celsius made roughly a billion dollars in loans to Alameda Research while Mashinsky was CEO between 2021 and 2022.
The civil lawsuit seeks to bar Mashinsky from doing business in New York and to impose monetary penalties for violating state laws.
“It’s a warning shot to other founders of entities like this,” Todd Phillips, founder of Phillips Policy Consulting LLC, said.
Meanwhile, Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday, as investors concerned about the FTX collapse withdrew more than $8 billion, sending the bank’s stock down more than 43%.
On Wednesday, a U.S. attorney told a bankruptcy court that prosecutors had seized U.S. bank accounts at Silvergate and Farmington State Bank, which are affiliated with FTX’s Bahamas-based business, FTX Digital Markets.
According to court records, the accounts at Silvergate Bank and Farmington State Bank, which operates as Moonstone Bank, held approximately $143 million.
As the industry downturn grew worse, Silvergate also announced it would reduce its workforce by 40%, or about 200 employees, in order to control costs. According to a person familiar with the situation, Genesis also intends to eliminate 30% of its workforce in a second round of layoffs in less than six months.
Announcing in November that its cryptocurrency lending arm would stop issuing new loans and preventing customers from withdrawing money, Genesis, which brokers digital assets for financial institutions like hedge funds and asset managers, cited market uncertainty brought on by the failure of FTX.
The Wall Street Journal broke the news of the layoffs first, along with a report that Genesis was thinking about declaring Chapter 11 bankruptcy. According to the report, which relied on people with knowledge of the situation, the company is collaborating with investment bank Moelis & Co. to assess its options.
Gemini, a cryptocurrency exchange that collaborated with Genesis on a crypto lending product, and other Genesis creditors have been pushing for a solution to prevent a situation like FTX’s quick descent into bankruptcy.
With his twin brother, Cameron Winklevoss founded Gemini. On Monday, he accused Barry Silbert, CEO of Genesis’ parent company Digital Currency Group, of using “bad faith stall tactics” and demanded that he resolve $900 million in disputed customer assets by January 8.
(Editing by Lananh Nguyen and Matthew Lewis; reporting by Hannah Lang in Washington; additional reporting by Jonathan Stempel in New York; Manya Saini, Niket Nishant, and Anirban Chakroborti in Bengaluru)