Bankrupt cryptocurrency financier Genesis gets OK to return billions in tokens and cash to creditors, meaning parent company DCG ‘is out of money’

Bankrupt cryptocurrency lender Genesis Global Capital has won court approval of its plan to distribute billions of dollars in digital assets and cash to creditors, defeating a lawsuit challenge brought by its parent company Digital Currency Group.

Judge Sean Lane said late Friday that he will confirm Genesis’ Chapter 11 repayment plan that includes a unique framework for returning Bitcoin and other tokens to creditors. The decision paves the way for Genesis to return customer assets that have been frozen on the platform since the company suspended withdrawals in November 2022 following the collapse of other major cryptocurrency firms.

Judge Lane rejected DCG’s legal challenge, stating in a 135-page ruling that Genesis’ parent company lacked standing to challenge the Chapter 11 plan. As an equity holder of Genesis, DCG is the l is last in line for repayment in Chapter 11 and Judge Lane said whatever value his bankrupt subsidiary has to distribute is absorbed by creditors, who are not fully repaid, and sit before DCG.

“Given the scale of the creditors’ claims, DCG is out of the money as a holder of billions of dollars of equity,” Judge Lane said.

DCG argued that the scheme gives Genesis’ creditors an impermissible gain at its expense. The parent company said creditors’ claims are to be determined based on where cryptocurrency prices were at the time its subsidiary filed for bankruptcy in early 2023. At the time, Bitcoin was trading at around 24,000 dollars, compared to more than $66,700 on Friday.

The DCG could appeal Judge Lane’s decision.

Genesis estimated that creditors who lent it digital assets could recover up to 77% under its proposal, and substantially less if DCG prevailed. The bankrupt lender’s proposal had broad support from its creditors, including customers of Gemini Earn, a lending program jointly run with the billionaire Winklevoss brothers’ Gemini Trust Co..

Judge Lane also said he would approve a relative settlement with New York Attorney General Letitia James suing Genesis over the Earn program. The deal is structured so that assets that might otherwise have gone to state authorities will instead be returned to Earn’s former customers.

The bankruptcy judge previously approved a separate settlement with the U.S. Securities and Exchange Commission ending a different complaint about the Earn program, which has since been resolved.

The case is Genesis Global Holdco, LLC, 23-10063, United States Bankruptcy Court, Southern District of New York (Manhattan).

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