A tough start for cryptocurrency companies in 2023 includes outflows, layoffs, and a lawsuit

A tough start for cryptocurrency companies in 2023 includes outflows, layoffs, and a lawsuit

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The troubles facing the cryptocurrency industry continued on Thursday as falling deposits, job losses and a lawsuit added to the turmoil of 2022, which was marked by falling prices and high-profile bankruptcy filings.

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

This week, the sector was hit hard by the fallout from the failure of cryptocurrency exchange FTX and criminal allegations against its creator, Sam Bankman-Fried. Affected were cryptocurrency-focused Silvergate Bank and Genesis Global Capital, which are downsizing and reporting a significant drop in deposits.

On Thursday, Alex Mashinsky, the founder and former CEO of Celsius Network, who is also a cryptocurrency entrepreneur, was embroiled in a lawsuit. In a new complaint, the New York Attorney General alleges that Mashinsky deceived investors by concealing the deteriorating state of his now-bankrupt cryptocurrency lending company.

In addition to demanding that Maschinsky pay damages for violating state law, the civil complaint seeks to bar him from conducting business in New York.

According to the lawsuit, Celsius made over $1 billion in loans to Alameda Research between 2021 and 2022, when Mashinsky served as CEO.

Todd Phillips, founder of Phillips Policy Consulting LLC, said it “serves as a shot across the bow for other founders of such companies.”

Meanwhile, investors spooked by the FTX meltdown withdrew more than $8 billion, leading Silvergate Capital Corp to post a sharp drop in crypto-related deposits in the fourth quarter on Thursday, pushing the bank’s shares lower fell by more than 43%.

On Wednesday, a US attorney testified in a bankruptcy court that authorities had taken possession of US bank accounts at Silvergate and Farmington State Bank linked to FTX Digital Markets, FTX’s Bahamas-based company. According to court documents, the accounts of Silvergate Bank and Farmington State Bank, which operates as Moonstone Bank, contained around $143 million.

As the industry crisis deepened, Silvergate also said it would reduce its workforce by 40%, or about 200 employees, to control spending. Genesis also intends to eliminate 30% of its staff in a second round of layoffs in less than six months, according to a person familiar with the situation. Genesis, which brokers digital assets for financial institutions including hedge funds and wealth managers, announced in November that its cryptocurrency lending facility would halt new lending and prevent customers from withdrawing funds, citing market uncertainty caused by FTX’s demise.

The Wall Street Journal first broke the news of the layoffs, along with a word that Genesis was considering declaring Chapter 11 bankruptcy. According to the article, which is based on people with knowledge of the situation, the company is working with investment bank Moelis & Co. to evaluate its alternatives.

Gemini, a cryptocurrency exchange that has partnered with Genesis on a crypto lending product, and other Genesis creditors have been pushing for a solution to prevent a situation like FTX’s rapid bankruptcy spiral. With his twin brother, Cameron Winklevoss founded Gemini. On Monday, he accused Barry Silbert, CEO of Genesis parent company Digital Currency Group, of using “malicious delaying tactics” and demanded that he be released by March 8.

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A tough start for cryptocurrency companies in 2023 includes outflows, layoffs, and a lawsuit. Check all the news and articles from the latest Business News updates.

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