Bankrupt cryptocurrency lender Genesis Global has received court approval to return approximately $3 billion in cash and cryptocurrency to its creditors. This decision leaves its parent company, Digital Currency Group (DCG), without any recovery from the bankruptcy.
Judge Approves Repayment Plan
On Friday, May 17, Judge Sean Lane approved Genesis’s Chapter 11 repayment plan. This ruling allows Genesis to unfreeze and return customer assets that have been locked up since the company stopped withdrawals in November 2022. The withdrawals halt followed the collapse of several major cryptocurrency firms.
Judge Lane overruled an objection from DCG. DCG argued that Genesis should pay its customers and creditors only the value of the crypto assets as of January 2023, when Genesis filed for bankruptcy. Since then, the price of Bitcoin has risen significantly, from around $24,000 to over $66,700 on May 17.
Lane dismissed DCG’s legal challenge in a 135-page ruling, stating that DCG lacked the legal standing to contest the Chapter 11 plan.
DCG’s Equity Deemed Valueless
As a shareholder in Genesis, DCG holds a junior position in the repayment hierarchy under Chapter 11 proceedings. Lane stated that any funds available for distribution by Genesis are being exhausted by creditor claims, which take priority over DCG’s equity stake.
Due to the large creditor claims, Lane deemed DCG’s equity interest essentially valueless, with a multibillion-dollar shortfall.
Lane ruled that even with capped customer claims, Genesis must prioritize paying numerous other creditors, including federal and state financial regulators, with $32 billion in claims before distributing any funds to DCG, its equity owner.
Genesis Global Suffering the Aftereffects of the Crypto Bear Market
Genesis is one of several cryptocurrency lending firms affected by the massive crypto bear market of 2022. The lender filed for bankruptcy in January 2023 after suspending withdrawals following a liquidity crisis in mid-November 2022. The firm reportedly owes more than $3.5 billion to its top 50 creditors, including companies like Gemini.
Genesis has been working to liquidate $1.6 billion of its assets after failing to reach settlements with DCG and its former business partner, Gemini. In November 2023, Genesis Global announced that DCG had agreed to pay its outstanding $324.5 million in loans by April 2024. The proposed deal aimed to allow Genesis Global to end a lawsuit filed against DCG in September, seeking repayment of overdue loans worth around $620 million.
