Genesis moves for early bankruptcy payouts as NYAG suit applies pressure
Genesis, Digital Currency Group, and Gemini are tangled in complex legal disputes as the NYAG looms over bankruptcy processes.
A recent lawsuit initiated by the New York Attorney General’s Office (NYAG) could impact Genesis’ bankruptcy process, according to a Oct. 24 report from Reuters.
Genesis plans to propose a “no deal” bankruptcy plan in response to actions taken by the NYAG, in which, instead of waiting for the lawsuit’s outcome, it would distribute available crypto assets to customers and establish a process to maintain litigation claims against DCG and others, as stated by Genesis attorney Sean O’Neal in a New York court hearing.
The proposed “no deal” plan, if implemented, would likely result in diminished payouts for its users. However, this plan would shield these payouts from repercussions arising from the NYAG lawsuit.
The New York regulator sued Genesis Global, its parent company Digital Currency Group (DCG), and its one-time partner Gemini on Oct. 19, alleging that the three companies committed a $1 billion fraud against customers through a lending program. It aims to have the companies pay an unspecified amount of damages and penalties and halt certain operations in New York.
Separate from that lawsuit, Genesis’s bankruptcy proceedings have been ongoing since January. Early filings indicate the company owes $3.5 billion to its creditors, including $765 million to lending customers whose balances were previously locked.
Alongside those bankruptcy proceedings, Genesis is attempting to recover assets, including $620 million in unpaid loans from its parent firm, DCG. According to Reuters, Genesis now intends to preserve its litigation against DCG but also plans to liquidate assets and repay users before reaching any deal with the parent company.
Bankruptcy plan hastened
O’Neal stated that the above course of action has been “forced” by the NYAG’s complaint, which presumably will impose further costs on the company. He added that the new plan is “not an easy decision” but “an obvious decision.”
DCG, meanwhile, told Reuters that it will continue to take part in settlement talks. It said that it intends to defend itself and obtain a victory if it is forced into litigation.
DCG nevertheless called litigation with Genesis a “failed resolution that will result in far lesser recoveries for creditors.” It is unclear whether an out-of-court settlement would be complete in time for Genesis’ hastened payout plan.