Barry Silbert’s DCG objects “additional payouts” to Genesis creditors

abdelaziz Fathi

Digital Currency Group (DCG) has raised objections against the settlement reached between the New York Attorney General and Genesis, a crypto lender within DCG’s portfolio of digital asset businesses that recently filed for bankruptcy.

The controversy centers around the settlement agreement designed to resolve allegations that Genesis defrauded investors. DCG’s contention is that the agreement unfairly reallocates value from lower-priority creditors to those with preferred status, thereby violating the principles of absolute priority under bankruptcy law.

DCG’s critique was formalized in an objection filed with the U.S. Bankruptcy Court for the Southern District of New York, which is tasked with approving the settlement. The parent company argues that the settlement represents an improper attempt to bypass U.S. bankruptcy statutes, describing it as a “subversive arrangement” crafted hastily and without transparency.

Supporting DCG’s stance, Jason Brown, a legal professional with experience as a co-chief deputy in the attorney general’s office and as a senior federal attorney in New York, provided a court filing echoing DCG’s concerns. Brown highlighted the unusual nature of reaching a settlement without extensive, merit-based discussions on the claims involved, suggesting that the process deviated from typical legal practices for cases of significant magnitude.

The New York Attorney General’s office has not issued a response to these objections at the time of reporting. Additionally, Genesis had previously reached a settlement with New York’s Department of Financial Services (DFS), agreeing to a $8 million payment and the surrender of its BitLicense in New York, further complicating the company’s legal and financial landscape amidst bankruptcy proceedings.

DCG’s contention centers around Genesis’s plan to offer its customers “additional payouts” that reflect the increased value of cryptocurrencies since January 2023, when Genesis filed for bankruptcy. DCG argues that such payouts exceed what customers and creditors are legally entitled to under U.S. bankruptcy law.

DCG insists that repayments should be based on the value of the crypto assets at the time of the bankruptcy filing, rather than their current, higher market prices. This stance is driven by concerns that Genesis’s approach could leave fewer assets available for DCG after customer repayments are made, given the rise in the value of assets like bitcoin since the filing.

Genesis is currently in the process of liquidating its assets after unsuccessful settlement attempts with DCG, its former business partner Gemini, and regulators. The company did, however, reach a settlement with the U.S. Securities & Exchange Commission (SEC), agreeing to pay the agency $21 million from any remaining assets after customers are fully repaid.

The backdrop to this dispute includes a lawsuit filed by the SEC against Genesis and Gemini Trust, alleging illegal securities sales through their Gemini Earn crypto lending program. This program, launched in December 2020, enabled Gemini customers to lend their crypto assets to Genesis in return for interest, amassing billions in crypto assets from investors. The Earn program’s failure during the crypto market crash in November 2023 has led to litigation involving Genesis, Gemini, and DCG.

 

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