(Bloomberg) – Bankrupt crypto financier Genesis Global Capital has defeated a legal challenge by its parent company, Digital Currency Group, to file a lawsuit in court over its plan to distribute billions of dollars in digital assets and cash to creditors. received approval.
Judge Sean Lane said late Friday that he would approve Genesis' Chapter 11 repayment plan, which includes a unique mechanism for returning bitcoin and other tokens to creditors. The decision clears the way for Genesis to return customer assets that have been frozen on its platform since suspending withdrawals in November 2022 following the collapse of other major crypto companies.
Judge Lane issued a 135-page ruling rejecting DCG's legal challenge, finding that Genesis' parent company had no legal basis to challenge the Chapter 11 bankruptcy plan. DCG, a Genesis shareholder, was last in the order of repayment in Chapter 11 bankruptcy, and Judge Lane ruled that the value that should have been distributed by the bankrupt subsidiary would be siphoned off to creditors, who would not be repaid in full and would receive less money than DCG. It also said that it would be given priority.
“DCG has lost billions of dollars as an equity holder, given creditor claims,” Judge Lane said.
DCG argued that the plan would result in an unacceptable loss of interest to Genesis' creditors. The parent company said that claims against creditors should be based on the state of cryptocurrency prices at the time the subsidiary filed for bankruptcy in early 2023. At the time, Bitcoin was trading around $24,000, but on Friday it was trading at more than $66,700.
DCG may appeal Judge Lane's decision.
Genesis estimates that creditors who loaned out digital assets could recover up to 77% under its proposal, but are unlikely to recover much if DCG is widespread. The bankrupt lender's proposal received wide support from creditors, including customers of Gemini Earn, a lending program run in conjunction with the billionaire Winklevoss brothers' Gemini Trust Company.
Judge Lane also said he would approve a related settlement with New York State Attorney General Letitia James, who sued Genesis over the Earn program. The settlement is structured so that assets that would have gone to state authorities will instead be returned to former Earn customers.
A bankruptcy judge earlier approved another settlement with the U.S. Securities and Exchange Commission, ending another complaint about the Earn program, which is now closed.
The case is Genesis Global Holdco, LLC, 23-10063, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
(Updated the content of the judgment starting from the third paragraph)
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