Failed Crypto Firm Genesis Approved to Repay Creditors Billions

(Bloomberg) — Bankrupt crypto lender Genesis Global Capital won court approval for its plan to distribute billions of dollars in digital assets and cash to creditors, defeating a legal challenge brought by its corporate parent Digital Currency Group.

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Judge Sean Lane said late Friday that he would approve Genesis’ Chapter 11 repayment plan, which includes a unique structure for returning Bitcoin and other tokens to creditors. The decision clears the way for Genesis to return customer assets that have been frozen on the platform since it paused withdrawals in November 2022 following the collapse of other major crypto firms.

In his 135-page decision, Judge Lane rejected DCG’s legal challenge, saying Genesis’ parent company lacked legal standing to challenge the Chapter 11 plan. As a shareholder of Genesis, DCG is last in line for repayment in Chapter 11, and Judge Lane said the value its bankrupt subsidiary was required to distribute was completely absorbed by unrepaid creditors, sitting ahead of DCG.

“Given the magnitude of the creditors’ claims, DCG is out of billions of dollars as an equity holder,” Judge Lane said.

DCG argued that the plan provided an impermissible windfall at the expense of Genesis’ creditors. The parent company said creditor claims should be determined by where crypto prices were when its subsidiary filed for bankruptcy in early 2023. At the time, Bitcoin was trading around $24,000, down from more than $66,700 on Friday.

DCG may appeal Judge Lane’s decision.

Genesis has estimated that up to 77 percent could be recovered under its bid from creditors who lent it the digital assets, and significantly less if DCG prevails. The bid from the bankrupt lender was made by the billionaire Winklevoss brothers’ Gemini Trust Co. It has received broad support from its creditors, including customers of Gemini Earn, a credit program it runs jointly with .

Judge Lane also said he would approve a settlement involving New York Attorney General Letitia James, who sued Genesis over its Earn program. The deal is structured to return assets to former Earn customers that would otherwise go to government authorities.

The bankruptcy judge had previously approved a separate settlement with the U.S. Securities and Exchange Commission that settled a separate complaint about the Earn program that has since been terminated.

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The case is Genesis Global Holdco, LLC, 23-10063, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

(Updates on the content of the decision starting from the third paragraph)

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