Genesis Wins Confirmation Decision and NYAG Settlement Approval

May 21, 2024

Cleary Gottlieb successfully represented Genesis Global Capital LLC (Genesis) and certain of its affiliates in securing a landmark decision from the U.S. Bankruptcy Court for the Southern District of New York, confirming Genesis’ Chapter 11 plan and approving a settlement with the New York State Office of the Attorney General (NYAG).

The decision clears the path for in-kind recoveries for Genesis creditors, totaling approximately $4.9 billion in cash and digital assets, and the settlement of a $3 billion lawsuit between Genesis and NYAG.

On May 17, 2024, the Bankruptcy Court issued a 129-page opinion, approving Genesis’ Chapter 11 plan and a settlement agreement with the NYAG over the objections of Digital Currency Group Inc. (DCG), Genesis’s equity owner. Other objectors to the plan included the Crypto Creditors Ad Hoc Group and the Office of the United States Trustee. Breaking new ground, the decision allows creditors to receive in-kind distributions of cryptocurrency assets based on the present value of the assets they loaned to Genesis, rather than being limited to the value as of the petition date. As a result of the decision, Genesis is authorized to distribute all of its assets to creditors, even if those assets appreciated in value after the petition date.

The Chapter 11 plan was supported by nearly all creditor constituencies, including the Official Committee of Unsecured Creditors, an ad hoc group of Genesis lenders and an ad hoc group of dollar lenders. In its decision, the Bankruptcy Court ruled that DCG lacked standing to object to the plan because it could not recover on account of its equity interests, which were junior to tens of billions of dollars in allowed claims, including at least $11 billion in governmental claims. According to the decision, even if the Bankruptcy Court were to limit recoveries to petition date values, DCG would not be entitled to receive anything for its equity. This marks a unique approach in comparison to other large cryptocurrency bankruptcy cases, where debtors have elected to value and cap creditor claims as of their petition date values. Under the Genesis Chapter 11 plan, dollar creditors are estimated to receive 100% of their claims on an in-kind basis and cryptocurrency creditors are estimated to receive an average of 77% recoveries on an in-kind basis (allowing creditors to recover a portion of the appreciation in the value of their loaned cryptocurrency assets).

The NYAG settlement, which was litigated in conjunction with the plan, settles a $3 billion lawsuit brought by NYAG against Genesis under New York’s Martin Act. Under the settlement agreement, NYAG agreed to waive all disgorgement and penalty claims, to subordinate its claim to all other non-governmental general unsecured creditors, and to create a victims’ fund, under which every penny distributed to NYAG from the Genesis would be turned over to creditors. In approving the settlement, the Bankruptcy Court focused on the shared goal of Genesis and NYAG to provide restitution to creditors by returning as much of the cryptocurrency lent to Genesis as possible, consistent with those creditors’ contractual rights.

Genesis is a digital assets trading, lending, and borrowing firm.