DCG calls NYAG, Genesis settlement agreement ‘subversive’

Digital Currency Group has filed an objection to the New York Attorney General’s settlement agreement with bankrupt crypto lender Genesis.

The New York AG’s office and Genesis reached an agreement earlier this month, though the motion still needs to be approved by the bankruptcy court.

Genesis, as part of the proposed agreement, would cease current and future business activities in New York.

DCG, the parent company of the bankrupt lender, alleges that Genesis would “take value from lower classes and redistribute it to preferred creditors in violation of absolute priority.”

In court documents filed with the bankruptcy court, DCG argues that, even if the Chapter 11 plan is not confirmed as-is, the agreement with the NYAG would still “allow unsecured creditors to recover the value of their claims as of the distribution date.”

DCG objected to the bankrupt lender’s plan earlier this month, alleging that it “favors” some creditors. DCG says that the current plan pays out creditors based on the distribution date, not the petition date. The latter would be based on January 2023 prices. It is, according to DCG, “required by the Bankruptcy Code.”

In the bankruptcy case of failed crypto exchange FTX, creditors objected to using prices from the November 2022 petition date. However, a bankruptcy judge said in a hearing earlier this year that the “code is very clear.”

While large portions of DCG’s filing were redacted, the crypto firm further argues that the agreement violates bankruptcy law.

“Genesis’s proposed ‘settlement’ with the New York Attorney General is a back-door attempt to circumvent US bankruptcy law. 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,” DCG said in a statement shared with Blockworks.

“We will continue to fight the meritless claims in the NYAG’s complaint while ensuring that creditor recoveries are achieved in full in accordance with the bankruptcy code and in an equitable and transparent manner,” the firm continued.

The NYAG targeted DCG, Genesis and Gemini in a lawsuit late last year. Attorney General Letitia James alleged that the firms conspired on “fraudulent schemes” related to the Gemini Earn product.

Gemini, in October, said it disagreed with the NYAG including the firm as part of the complaint. It further alleged that Genesis lied to Gemini about its financial position.

Representatives for Genesis didn’t immediately return a request for comment.

Genesis recently settled with the Securities and Exchange Commission and could pay $21 million as part of the agreement spending on creditor repayment.

Earlier this month, Genesis got the green light to begin offloading $1.6 billion worth of Grayscale trusts, including roughly $1.3 billion of GBTC.

DCG requested to consult on the shares, but Judge Sean Lane overruled the request, saying that the company is “not in an ideal position” to offer “advice untainted by its own interest.”