The NYAG and Genesis may be required to revise their settlement in light of DCG’s allegations of violations of the Bankruptcy Code.
In an effort to put an end to its troubled legal history, the Digital Currency Group’s (DCG) former cryptocurrency lending subsidiary Genesis reached a settlement with the New York Attorney General’s office earlier this month. The office had accused the company and its associates of cheating investors out of more than $3 billion.
In an unexpected twist, DCG, the parent company of the crypto lender, has challenged the settlement, claiming that it has several “deficiencies,” even though the situation is still new.
Genesis, DCG’s insolvent company, negotiated a settlement with the New York Attorney General’s Office; nevertheless, DCG filed an objection to the deal on February 21.
The redacted objection argues that the settlement is illegal because it bases payments on asset valuations as of the distribution date rather than the petition date, which is a violation of the Bankruptcy Act.
In its objection, DCG emphasized that the Supreme Court of the United States has ruled against a settlement that violates the Bankruptcy Code.
The venture investor also claims that the deal gives an unfair advantage to the New York Attorney General’s office and unsecured creditors, as Genesis would pay out its creditors from the debtors’ inheritance. DCG stressed that this would deny the company a reasonable chance to take part in the waterfall as a creditor and equity holder under the debtors’ plan.
As a secured creditor, the venture investor stands to gain nothing from Genesis’ settlement with NYAG. The venture capitalist’s loan is “secured” by collateral as DCG is a secured creditor since it controls the only equity in Genesis. Debtors who owe money to unsecured creditors don’t have anything to back their claims.
To finish its objection, DCG argues that the settlement’s shortcomings show that the likelihood of successfully defending against NYAG’s claims in court was not taken into account. DCG requests that the court delay approving the deal until its concerns are resolved.
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