Digital Currency Group (DCG) has filed a motion objecting to the bankruptcy plan proposed by Genesis Global Capital, its subsidiary, citing violations of the Bankruptcy Code.
The objection – lodged on February 5th – asserts that Genesis’ plan exceeds the legal entitlements of its customers, potentially favoring a select group of creditors while stripping DCG of its rights. Instead of adhering to US bankruptcy laws, the venture capital firm said that Genesis has suggested offering its customers extra payouts to compensate for the increasing value of cryptocurrencies.
“Epitome of Bad Faith”
In the official filing, DCG argued that while it would support a plan to pay creditors their full claims, Genesis’ proposal falls short of this standard. DCG maintained that Genesis should compensate its clientele and creditors no more than the assessed value of the crypto assets at the point of итс bankruptcy declaration in January 2023.
The objection highlighted the disproportionate benefits granted to unsecured creditors, potentially violating fundamental principles of bankruptcy law.
According to DCG, the proposed plan fails to comply with Section 502(b) of the Bankruptcy Code, which requires claims valuation in US dollars as of the petition date. By allowing certain claims to inflate based on asset appreciation post-petition, the plan allegedly facilitates an unlawful diversion of assets to favored creditors.
“On top of all of this, a small group of particularly powerful creditors have also inserted favorable setoff provisions that allow them to minimize their obligations to the Debtors while maximizing their recoveries. Put simply, the influential creditors controlling the UCC and Ad Hoc Group have sought to enrich themselves by literally taking value from other stakeholders, and the Debtors caved to their demands in violation of their fiduciary duties.”
The latest development comes exactly a month following DCG’s announcement that all short-term loans from Genesis have been successfully paid off. As reported earlier, DCG settled over $1 billion in debts to numerous creditors within the last twelve months, allocating close to $700 million to its bankrupt subsidiary.
Genesis: The Bankruptcy Proceedings So Far
Genesis filed for bankruptcy in January 2023 after suspending withdrawals amidst a liquidity crisis in mid-November 2022.
Fast forward to 2024, Genesis and its subsidiaries disclosed settling with the United States Securities and Exchange Commission (SEC) in a lawsuit associated with its Gemini Earn lending program for $21 million.
More recently, it petitioned the United States Bankruptcy Court for authorization to sell shares in the Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Grayscale Ethereum Classic Trust (ETCG), totaling approximately $1.6 billion. The lending entity stated that the objective is to maximize the funds available for distribution to creditors.
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