Court-Approved Asset Liquidation Amidst Bankruptcy Challenges
- Genesis Global receives court approval to sell $1.6 billion in Grayscale cryptocurrency trust shares, aiming to repay creditors amidst bankruptcy.
- Digital Currency Group, Genesis’s parent company, objects to the sale and the proposed bankruptcy plan, citing the overcompensation of customers.
- The bankruptcy plan, including customer repayment strategies and asset valuation controversies, awaits final court approval on February 26.
Genesis Global, a crypto lender now in bankruptcy, has received court approval to sell approximately $1.6 billion in Grayscale cryptocurrency trust shares. This development is a part of Genesis’s strategy to repay its creditors amidst ongoing financial turbulence in the crypto market.
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Court Approval: Genesis’s Path to Creditor Repayment
The approval, granted by U.S. Bankruptcy Judge Sean Lane in White Plains, New York, authorizes Genesis to liquidate its holdings in Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Ethereum Classic Trust.
According to recent court filings, Genesis holds about 35 million shares in the Bitcoin trust, valued at around $1.38 billion, and Ethereum trust shares worth approximately $207 million. The sale of these shares is deemed crucial by Genesis to repay customers and circumvent the monthly fees of $1.9 million tied to its trust agreements.
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Objections and Controversies: The DCG Stance
This decision, however, overruled an objection from Digital Currency Group (DCG), Genesis’s parent company. DCG had expressed concerns that the sale might be premature, especially if Genesis fails to secure court approval for its overall bankruptcy plan. DCG argues that the bankruptcy plan, as proposed, overcompensates customers and creditors at the cost of DCG’s recovery as an equity owner.
Amid its bankruptcy proceedings, Genesis is progressing with a liquidation plan that aims to shut down the company and reimburse customers either in cash or cryptocurrency, based on the nature of their deposits. Earlier this month, Genesis reached settlements with the U.S. Securities & Exchange Commission (SEC) and New York Attorney General Letitia James, resolving their objections to the bankruptcy plan.
The SEC and the New York Attorney General have agreed to prioritize customer repayments in their settlements. The SEC is poised to receive a $21 million fine, contingent on Genesis having residual funds after customer repayments. In contrast, any funds recovered from the bankruptcy by James will be utilized to assist creditors allegedly defrauded by Genesis.
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The Future of Genesis: Bankruptcy Plan and Legal Proceedings
The controversy surrounding the bankruptcy plan primarily stems from DCG’s stance on the valuation of customers’ crypto holdings. DCG insists that U.S. bankruptcy law mandates the valuation of these holdings based on their worth at the time of Genesis’s bankruptcy filing in January 2023.
The company asserts that customers should not receive compensation exceeding the value of their crypto holdings as of that date. The proposed plan includes provisions for “additional payouts” to account for the rising value of assets like Bitcoin and Ethereum.
Judge Lane is slated to deliberate on the approval of Genesis’s bankruptcy plan in a court hearing scheduled for February 26. The case gains added significance as it follows Genesis’s bankruptcy filing in January 2023, which occurred a week after the SEC sued the firm for allegedly selling illegal securities and two months post the suspension of customer withdrawals from its Gemini Earn crypto lending program.
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