Genesis’ Parent Company Denied Recovery In Wake Of $3 Billion Payout Approval

Genesis Global, a bankrupt digital asset lending company, has been approved by the Court to allocate $3 billion in cryptocurrencies and cash to its creditors. However, the ruling prevents its parent company, Digital Currency Group (DCG), from getting any compensation from the bankruptcy.

The Court’s decision last week allowed the company to release and give back customers’ funds that were frozen in November 2022. The firm also closed down all trading activities in 2023.

Creditors With Claims In USDT Will Receive 100% Of Their Credit Balance

Last year, Genesis applied for Chapter 11 bankruptcy protection in New York due to the problems it encountered. Its involvement with Three Arrows Capital, a failed crypto investment fund, and FTX, likewise undergoing bankruptcy, contributed to its financial challenges.

The authorization of $3 billion in allocation only covers around 77% of the value of the client’s claims., Per the Court’s instruction, creditors whose claims are in USDT will get 100% of their credit balance; however, creditors with claims in other digital currencies will suffer a loss.

At the period when Genesis went bankrupt, the price of Bitcoin was about $24,000, but it has now increased to over $66,000. Earlier, DCG insisted that the cost of the creditor’s compensation should be limited to the cryptocurrency value at the time of the bankruptcy petition.

This approach would enable possible retrieval of its funds, but the Court dismissed the proposal.

The Court Aims To Resolve Issues Related To The Distribution Of Assets

The decision made by Judge Sean Lane shows that there isn’t enough value in the Debtors’ assets to give DCG any money as a shareholder after paying off other creditors. Lane takes into consideration the amount of money owed to creditors. The plan is to start giving back creditors their money by early next month, benefiting Gemini Earn customers and other Genesis creditors.

He stated that DCG won’t get anything back as a shareholder, even if the Court uses the method DCG suggests valuing the claims of creditors.

The Court also highlighted the problems in DCG’s financial practices when it took on $1.1 billion of Genesis’s debt from the collapse of Three Arrows Capital, using a 10-year promissory note. Genesis then sued DCG for not paying back a loan.

DCG had already given back $227.3 million of the loan and agreed with Genesis last November to pay another $275 million by April.

Earlier this year, the US securities regulator penalized Genesis with a $21 million fine for running an unlawful crypto lending platform.