The aftermath of the collapse of cryptocurrency exchange FTX and the criminal charges against its founder Sam Bankman-Fried weighed heavily on the industry this week. Firms affected include Genesis Global Capital, which has been laying off staff, and cryptocurrency specialist Silvergate Bank, which has seen a sharp decline in its deposits.
On Tuesday, Bankman-Fried pleaded not guilty to eight charges, including wire fraud and conspiracy to commit money laundering. The 30-year-old is accused of looting FTX clients’ deposits to support his hedge fund Alameda Research, buy real estate and donate millions of dollars to political causes.
Another cryptocurrency entrepreneur, Alex Mashinsky, founder and former CEO of Celsius Network, also faced a legal battle on Thursday. A new lawsuit filed by the New York Attorney General claims Mashinsky defrauded investors by hiding the ill health of his now-bankrupt cryptocurrency lending platform.
While Mashinsky served as CEO between 2021 and 2022, Celsius earned about $1 billion in loans from Alameda Research, according to the lawsuit.
The civil suit seeks to prevent Mashinsky from doing business in New York and award him compensation 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 saw a sharp decline in cryptocurrency-related deposits in the fourth quarter on Thursday as investors spooked by FTX’s collapse withdrew more than $8 billion, sending the bank’s stock tumbling more than 43%.
A US prosecutor told a bankruptcy court on Wednesday that prosecutors seized US bank accounts at the Silvergate and Farmington State Bank affiliates of FTX’s Bahamian-based firm, 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 would reduce its workforce by 40%, or about 200 employees, to keep costs down as the industry’s recession deepens. Genesis also plans to reduce 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 withdrawals of funds from clients, citing the market turmoil it caused from 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 assess its options, the report said, citing people familiar with the matter.
Cryptocurrency exchange Gemini, which had a cryptocurrency lending product in partnership with Genesis, and other Genesis lenders are scrambling to find a solution to avoid a similar situation from FTX’s rapid fall 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 standoff tactics” and demanded he pledge to resolve $900 million in Gemini assets. customers contested by 8 January.