There will be absolutely no leftover for stock investors like DCG due to the massive debt and demands from creditors.
On Friday, as part of its bankruptcy liquidation procedure, the court authorized the repayment to creditors of almost $3 billion in cash and crypto assets by the insolvent crypto lending business Genesis Global Holdco. S. Sean Lane, a US bankruptcy judge, handed down the ruling.
Judge Sean Lane also denied Digital Currency Group’s (DCG) motion to vacate the bankruptcy estate’s asset distribution plan.
DCG raised concerns about the distribution plan because it thinks repayments should be limited to the value of crypto assets as of January 2023, when Genesis filed for bankruptcy. The value of cryptocurrencies such as Bitcoin has skyrocketed since then, with the price of Bitcoin alone increasing from around $21,000 to its current valuation of almost $67,000.
Also, the company said that DCG would be paying too much in returns to creditors under the arrangement. In essence, DCG believes that the distribution of profits unjustly disadvantages it.
Still, DCG’s reasoning was insufficient. According to Judge Sean Lane’s ruling, DCG’s financial interest is unaffected by the distribution of assets since it is an equity holder. Payment to equity investors is contingent upon the satisfaction of all creditors.
Aside from that, DCG will not get any dividend from this plan because of the bankruptcy and the enormous demands from creditors.
Debtors have billions more in debt than they have assets to pay it off. During a bankruptcy, distributions to certain claims will take precedence over those to equity investors like DCG.
The decision gave federal and state financial regulators’ claims, totaling $32 billion, precedence over DCG’s equity investment.
Depending on how the market plays out in the future, Genesis might end up paying out as much as 77% of the value of consumer claims.
During the market crash of 2022, Genesis and other lending platforms were hit severely by the fall of Three Arrows Capital (3AC) and FTX, which caused liquidity concerns. As a result, in January of 2023, the business filed for Chapter 11 bankruptcy.
Gemini, Decentraland, VanEck, and Bybit’s Mirama are among the well-known names that are debtors of Genesis.
The US Securities and Exchange Commission (SEC) filed a lawsuit against Genesis Global Capital, adding insult to injury. Genesis and Gemini faced accusations from the SEC over the sale of unregistered securities via Gemini Earn. The business settled with the SEC for $21 million in March of this year.
Also Read: U.S. Treasuries Now Held by Tether Greater Than German Treasuries
