Genesis has altered its bankruptcy plans, and that doesn’t sit well with the federal government.
The crypto lender said in a filing last week that it wants to liquidate its assets instead of reorganizing. And that could delay the bankruptcy process, U.S Trustee William Harrington said in a separate court filing Wednesday (Nov. 1).
“There could not be a starker example of a material change of a plan,” Harrington, a Justice Department official, wrote in the filing.
“Yet, the Debtors have provided parties and the Court with little or no time — and certainly, insufficient time as set forth under the Bankruptcy Rules — to review the materially changed terms of the plan,” he said.
The old plan, he wrote, provided for the sale of assets and reorganization of unsold debts for the benefit of creditors. The new plan calls for liquidations of all three debtors, who “have substantially and materially modified the sale plan,” said Harrington.
Genesis — a unit of Digital Currency Group (DCG) — and two of its subsidiaries filed for Chapter 11 bankruptcy protection in January, owing its top 50 creditors about $3.4 billion.
“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” Genesis Interim CEO Derar Islim said at the time.
Genesis altered its bankruptcy plans last month after the company and crypto exchange Gemini were sued by New York Attorney General Letitia James, who accused the companies of defrauding customers of $1.1 billion.
The lawsuit alleges that Gemini and DCG’s Genesis Global Capital unit did not disclose the risks associated with a crypto-lending program they began in 2021.
According to the suit, Gemini misled customers about the risks involved in its partnership with Genesis and failed to reveal that nearly 60% of its third-party loans were given to Sam Bankman-Fried’s now-defunct crypto trading firm, Alameda Research.
All three companies have denied James’ charges.
Gemini has pushed back against the lawsuit, claiming that it too was misled by Genesis, and adding that accusing “a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”