Key Insights:
- Genesis Global will return $3 billion in cryptocurrency and cash to customers following court approval.
- In the repayment plan, creditors, including federal and state regulators, will have priority over Genesis’ parent company, DCG.
- Genesis estimates creditors could recover up to 77% of their claims, with repayments primarily in Bitcoin and other cryptocurrencies.
Genesis Global has received court approval to distribute approximately $3 billion in cash and cryptocurrency to its customers. This decision follows a ruling by U.S. Bankruptcy Judge Sean Lane, who approved the company’s Chapter 11 liquidation plan, overruling objections from Genesis’ parent company, Digital Currency Group (DCG).
1/ An update on the Genesis bankruptcy: Judge Lane from the Southern District of New York court today approved the Genesis bankruptcy plan to return value from the Genesis estate back to creditors and rejected @BarrySilbert‘s objections. https://t.co/p85uM96Imf
— Vijay Boyapati 🦢 (@real_vijay) May 18, 2024
On Friday, Judge Lane dismissed DCG’s argument that customer repayments should be based on the value of crypto assets as of January 2023, when Genesis filed for bankruptcy. Instead, the judge ruled that repayments would reflect current crypto asset values, which have increased since the filing. Furthermore, Genesis Global must first address claims from other creditors, including federal and state financial regulators, which total $32 billion. This decision leaves DCG with insufficient assets to recover any funds from the bankruptcy proceedings.
Genesis Global has pledged to return funds to customers primarily in cryptocurrency. However, the firm needs more cryptocurrency to cover all its debts. In February, Genesis estimated that it could repay up to 77% of customer claims, contingent on future price fluctuations of crypto assets.
This approval marks a significant step for Genesis Global, whose customer assets have been frozen since November 2022 following the collapse of several major crypto companies. The repayment plan includes a unique structure of returning Bitcoin and other cryptocurrencies, unlike the plan from FTX, which aims to repay creditors in USD. FTX, which filed for bankruptcy in November 2022, plans to distribute up to $16.3 billion in cash to creditors, significantly more than what is owed and includes paying interest to its 2 million customers.
The court’s decision is a setback for DCG, which has faced ongoing legal challenges. Judge Lane emphasized that creditors have priority over DCG in Genesis’ debt repayment plan. He stated that any value Genesis Global has to distribute will be absorbed by creditors, leaving DCG with no recovery as an equity holder. “Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars,” Lane noted.
Genesis’ repayment proposal has received strong support from its creditors, including customers of Gemini Earn, a lending program run in partnership with the Winklevoss brothers’ Gemini Trust Co. The bankruptcy judge also indicated approval for a related settlement with New York Attorney General Letitia James, who sued Genesis over the Earn program. This settlement ensures that assets, which could have gone to state authorities, will instead be returned to former Earn customers.
Additionally, Judge Lane approved a separate settlement with the U.S. Securities and Exchange Commission, resolving another complaint regarding the now-terminated Earn program. This decision further solidifies the repayment plan and provides clarity on how Genesis Global will move forward in addressing its debts.
