Bankrupt crypto lender Genesis Global Capital won court approval for its plan to distribute billions of dollars in digital assets and money to creditors, failing in a court case Challenge Brought in by the parent company Digital Currency Group.
Judge Sean Lane said late Friday he would confirm Genesis’ Chapter 11 repayment plan, which incorporates a novel structure for returning Bitcoin and other tokens to creditors. The decision clears the best way for Genesis to return customer funds that had been frozen on the platform for the reason that company suspended withdrawals in November 2022 following the collapse of other major crypto firms.
Judge Lane rejected DCG’s legal challenge, declaring in a 135-page ruling that Genesis’ parent company had no legal standing to challenge the Chapter 11 plan. As a Genesis shareholder, DCG is last in line for repayment in Chapter 11, and Judge Lane said the worth the bankrupt subsidiary must distribute will likely be absorbed by creditors who will not be fully repaid, putting DCG ahead.
“Given the magnitude of creditors’ claims, DCG as a shareholder is billions of dollars out of money,” Judge Lane said.
DCG argued that the plan provided Genesis’ creditors with an improper gain at their expense. The parent company said creditor claims have to be determined based on crypto prices on the time of its subsidiary’s bankruptcy filing in early 2023. At the time, Bitcoin was trading at around $24,000, down from greater than $66,700 on Friday.
DCG could appeal Judge Lane’s decision.
Genesis estimates that creditors who lent it digital assets could recuperate as much as 77% under its proposal, and significantly less if DCG had prevailed. The insolvent lender’s proposal received widespread support from its creditors, which include customers of Gemini Earn, a lending program it ran jointly with the billionaire Winklevoss brothers’ Gemini Trust Co.
Judge Lane also said he would comply with a related case settlement with New York Attorney General Letitia James, who sued Genesis over the Earn program. The settlement is structured in order that assets that otherwise could have gone to government agencies will as a substitute be returned to former Earn customers.
The bankruptcy judge previously approved a separate settlement with the U.S. Securities and Exchange Commission that ended one other grievance concerning the Earn program that has since been dropped.
The case is Genesis Global Holdco, LLC, 23-10063, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
