Genesis’ Parent Will Not See Any Recovery amid $3 Billion Payout Approval

Genesis Global, a bankrupt crypto lender, has received court approval to distribute $3 billion in cash and cryptocurrencies to its creditors. However, the decision excludes its parent Digital Currency Group (DCG) from receiving any recovery from the bankruptcy.

The court’s ruling on Friday cleared the company to unfreeze and return customers’ assets that were locked up since November 2022. The lender also shuttered all trading operations last year.

Another Failed Crypto Lender

Genesis filed for Chapter 11 bankruptcy protection in New York in January 2023 following the troubles it faced from its exposure to Three Arrows Capital, a collapsed crypto hedge fund, and FTX, which is also under bankruptcy process. At the time of bankruptcy, it owed over $3.5 billion to the top 50 creditors alone.

The approval of $3 billion in distribution only represents about 77 percent of the value of the customers’ claims. According to the court order, the creditors with claims in USD will receive “100 percent of their loan balance (deferring payment of post-petition interest)” but creditors with claims in cryptocurrencies will bear a shortfall.

No Recovery for DCG

At the time of Genesis’ bankruptcy, the value of Bitcoin was around $24,000, which has now jumped to over $66,000. Previously, DCG argued that the value of the creditors’ recovery should be capped at the value of cryptocurrencies during the bankruptcy filing, allowing potential recovery of its assets, but the court rejected the proposal.

“The record here clearly establishes that there is not sufficient value in the Debtors’ estates to provide DCG a recovery as equity holder after unsecured creditors are paid,” Judge Sean Lane wrote in his ruling. “Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars, even if the Court valued creditor claims using the method DCG proposes.”

The court further pointed at the anomalies in DCG’s financial practices as it assumed $1.1 billion of Genesis's debt from the Three Arrows Capital collapse with a 10-year promissory note. Genesis also sued DCG for failure of payment of a loan. DCG already paid $227.3 million of the loan and reached an agreement with Genesis last November to pay another $275 million by April.

Earlier this year, the US securities regulator also fined Genesis $21 million for operating an illegal crypto lending platform.