With regard to the $1.7 billion in loans it gave to its parent company Digital Currency Group, cryptocurrency lender Genesis Global is pursuing a chapter 11 liquidation plan, rejecting a prior settlement proposal.
Genesis filed court documents on Wednesday outlining its intention to leave chapter 11 without having its lawsuit against DCG, the cryptocurrency company led by seasoned investor Barry Silbert, settled. Without the settlement agreement reached in August, which was supposed to provide estimated recoveries of between 70% and 90% for Genesis customers, including users of the Earn programme offered by cryptocurrency exchange Gemini Trust, the company is now getting ready to liquidate off its assets.
Important parties, including Gemini and its founders, the Winklevoss brothers, rejected the settlement offer, and the parties had been engaged in ongoing talks. In the end, Genesis stated in documents filed with the U.S. Bankruptcy Court in New York, that it was unable to come to an understanding with DCG regarding the terms of the final debt.
Last week, Gemini Trust, Genesis, and DCG were accused by New York Attorney General Letitia James of defrauding over 230,000 investors out of over $1 billion. Genesis stated in the filings that it has decided that a settlement with DCG is not a feasible course of action in light of the lawsuit, as well as the official committee that represents its customers.
A Genesis representative stated that the company has been assisting all authorities and that the lawsuit’s allegations against it are without merit.
Last week, a DCG representative stated that the company was taken aback by the lawsuit since it assisted the attorney general’s probe. Gemini last week stated that, as a result of fraud against the company and the investors in its Earn programme, it disagreed with being named in the lawsuit.
The attorney general’s lawsuit claims that, despite being aware that Genesis’s cryptocurrency loans were highly concentrated and undercollateralized, Gemini misled investors in the Earn programme by omitting to disclose its risks.
Customers of Genesis can anticipate estimated recoveries under the new plan of between 61% to 77%, subject to court approval. In January, Genesis declared bankruptcy following the failure of the cryptocurrency exchange FTX.
In comparison to a settlement with DCG that would have provided greater value up front, the customers’ estimated recoveries under the new plan are lower. Customers would now have to wait for the resolution of a legal dispute against DCG in order to obtain payment for their unpaid loans from Genesis.
An email from a DCG representative stated that the company is still dedicated to working with all parties to find a fair resolution, and that a lawsuit-based resolution would mean much smaller recoveries for creditors. Additionally, the spokesman stated that the business is ready to defend and prevail.
The previous settlement aimed to reorganize DCG’s obligations to Genesis, covering an approximately $630 million past-due unsecured loan and a $1.1 billion unsecured promissory note that was scheduled to mature in 2032.
