Layoffs and a Lawsuit Crypto Industry Woes Continue In 2023

Crypto Industry Woes Continue Layoffs and a Lawsuit In 2023

The crypto industry's woes continued on Thursday, with plummeting deposits, layoffs, and a lawsuit adding to the turbulence of 2022. It 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 records stated by the court, the accounts at Silvergate Bank and Farmington State Bank held approximately $143 million.

Silvergate also announced that it would reduce its workforce by 40%, or approximately 200 employees, to cut costs as the industry downturn worsened. According to a person familiar with the situation, Genesis also intends to lay off 30% of its workforce in a second round of layoffs in less than six months.

Genesis, which brokers digital assets for financial institutions such as hedge funds and asset managers, announced in November that its crypto lending arm would stop making new loans and would not allow customers to withdraw funds, citing market turmoil caused by FTX's failure.

The layoffs were first reported by the Wall Street Journal, which also reported that Genesis is considering Chapter 11 bankruptcy. According to people familiar with the situation, the company is working with investment bank Moelis & Co to evaluate its options.

Gemini, which had a crypto lending product in partnership with Genesis, and other Genesis creditors have been lobbying for a solution to avoid a situation similar to FTX's quick demise.

Cameron Winklevoss, who co-founded Gemini with his twin brother, accused Barry Silbert, CEO of Genesis' parent company Digital Currency Group, of "bad faith stall tactics" on Monday and he demanded that will commit to resolving $900 million by January 8 in disputed customer assets.