Venture capitalists Digital Currency Group (DCG) filed an objection on Feb. 21 to the settlement reached by its bankrupt subsidiary, crypto lender Genesis, with the New York Attorney General’s (NYAG) Office.
According to the objection, which is available only in redacted form, the NYAG settlement bases payments to unsecured creditors on asset valuation as of the distribution date, rather than providing them with payment based on the petition date, as required by the Bankruptcy Code. The United States Supreme Court has ruled that a court cannot allow a settlement to violate the Bankruptcy Code, the objection stated.
Furthermore, the settlement “simply hands over to the NYAG (and ultimately unsecured creditors) all residual value left in the Debtors’ estates after unsecured creditors are paid,” which “would rob DCG, a creditor and equity holder, of a fair opportunity to participate in the waterfall under the Debtors’ plan” by “literally directing the disposition of the Debtors’ residual assets after satisfaction of the unsecured creditors’ claims.”
Under the settlement, the NYAG would receive payment on its claims only after unsecured creditors had been paid. As the sole equity holder in Genesis, DCG is a secured creditor.
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Genesis has not met its responsibilities to all creditors, DCG said. Its subsidiary must show that it “considered the merits of the claims, evaluated options for resolving those claims, sought the best deal for the estate, and initiated arm’s length negotiations to maximize the value of the estate as a whole.” According to a statement by DCG provided to Cointelegraph:
“DCG objects to this subversive arrangement, put together last-minute and in secret, which seeks to redistribute all estate value to preferred creditors who would have already received the full value of their claims.”
The deficiencies are signs that the debtors did not sufficiently take into account the possibility of prevailing against NYAG claims in court, according to the objection. DCG requested that the court withhold approval of the settlement until its objections are addressed.
Barry Silbert objects “additional payouts” to Genesis creditors -
— The Industry Spread (@industryspread) February 22, 2024
Digital Currency Group (DCG) has raised objections against the settlement reached between the New York Attorney General and Genesis, a crypto lender within DCG’s portfolio of digital asset businesses that rece... pic.twitter.com/4VUCROzmfH
DCG made similar objections to the Genesis bankruptcy plan.
The NYAG sued Genesis along with DCG and crypto exchange Gemini in October, charging that the defendants defrauded investors through the Gemini Earn program, which Genesis ran in partnership with Gemini. Genesis suspended withdrawals in November 2022 and filed for bankruptcy in January 2023.
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