Market News

BY Jonathan Randles, Bloomberg News

Cables inside a draw housing graphics processing units (GPU) used to mine the Ethereum and Zilliqa cryptocurrencies at the Evobits crypto farm in Cluj-Napoca, Romania, on Wednesday, Jan. 22, 2021. The world’s second-most-valuable cryptocurrency, Ethereum, rallied 75% this year, outpacing its larger rival Bitcoin. Photographer: Akos Stiller/Bloomberg , Bloomberg

(Bloomberg) -- Bankrupt crypto lender Genesis Global Capital won court approval of its plan to distribute billions of dollars in digital assets and cash to creditors, defeating a legal challenge brought by its corporate parent Digital Currency Group.

Judge Sean Lane said late Friday he’d confirm Genesis’ Chapter 11 repayment plan which includes a unique structure for returning Bitcoin and other tokens to creditors. The decision clears Genesis’s path to return customer assets that have been frozen on the platform since the firm paused withdrawals in November 2022 following the collapse of other major crypto firms.

Judge Lane rejected DCG’s legal challenge, saying in a 135-page ruling that Genesis’ parent company lacked legal standing to challenge the Chapter 11 plan. As Genesis’s equity holder, DCG is last in line for repayment in Chapter 11 and Judge Lane said whatever value its bankrupt subsidiary has to distribute is getting soaked up by creditors, who aren’t getting fully repaid, and sit ahead of DCG.

“Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars,” Judge Lane said.

DCG argued that the plan gives Genesis creditors an impermissible windfall at its expense. The parent company said creditor claims must be set based upon where crypto prices stood at the time its subsidiary filed bankruptcy in early 2023. At the time, Bitcoin was trading around $24,000, compared to more than $66,700 on Friday.

DCG could appeal Judge Lane’s decision.

Genesis has estimated creditors who lent it digital assets could recover as much as 77% under its proposal, and substantially less had DCG prevailed. The bankrupt lender’s proposal had wide support from its creditors, which include customers of Gemini Earn, a lending program it ran jointly with the billionaire Winklevoss brothers’ Gemini Trust Co.

Judge Lane also said he’d approve a related settlement with New York Attorney General Letitia James who sued Genesis over the Earn program. The settlement is structured so that assets that could have otherwise gone to state authorities will instead be returned to former Earn customers. 

The bankruptcy judge earlier approved a separate settlement with the US Securities and Exchange Commission that ended a different complaint over the Earn program, which has since been terminated.

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

(Updates with context of ruling beginning in third paragraph)