Bankrupt Crypto Lender Genesis to Give Back $2B of Virtual Currency As Part of Latest Gemini Settlement

Failed cryptocurrency lending firm Genesis will reportedly be returning 97% of crypto-assets from a customer program with digital asset platform Gemini by May of this year.

This update has been shared after a New York based bankruptcy Judge stated on Tuesday that they have approved a settlement which attorneys for Genesis confirmed closes out disputes. It also sets it up to pay back other creditors as part of a Chapter 11 plan.

As first reported by Law 360, United States Bankruptcy Judge Sean H. Lane, at a recent hearing, commended the efforts by Genesis Global, which had submitted a Ch 11 bankruptcy filing back in 2023, and Gemini Trust Co. LLC for finally arriving at an agreement that puts to rest litigation coming from Gemini Earn.

Gemini Earn is described as a program where Gemini clients loaned out crypto-assets to Genesis and accumulated interest.

Most of those crypto-assets, which the legal team for Gemini claims are now valued at around $2 billion, are to be released in the coming month by Genesis (as per the latest agreement).

Legal representatives for the debtor stated this past Tuesday that the settlement agreement is a key step as Genesis gets ready to pay back its creditors and give back crypto if / once its Ch. 11 plan, which is before Judge Lane, gets the green light.

Sean O’Neal from Cleary Gottlieb Steen & Hamilton LLP for Genesis said:

“If that [plan] is approved, then our initial distributions to non-[Gemini] Earn users will not have to be subject to a reserve for Gemini users. In light of the fact that we’ve had creditors who have been locked out of their assets for 18 months, we want to be in a position where we can make distributions as soon as possible.”

Genesis and two other parties had submitted a Chapter 11 filing back in January of last year, while noting that there had been a decline in the crypto market prices as well as a series of major crypto-related business bankruptcy filings. This had left it on unstable ground with more than $5 billion of outstanding debt.

And back in November of 2022, Genesis had proceeded to freeze customer withdrawals, thus effectively holding onto crypto-assets for numerous clients, including crypto it had borrowed via the Earn program.

In October of last year, Gemini had moved forward with legal action against Genesis claiming that the debtor had been preventing it from handing out around $1.6 billion of collateral to clients of the controversial Earn program.

And after a month of this development, Genesis had come back with their own stance, noting in a lawsuit that Gemini must give back $689 million it withdrew prior to the bankruptcy (even though it might have already known that Genesis was not solvent).

Gemini had also submitted additional claims as part of the case, stating that Genesis allegedly owes the Earn clients as much as $1.1 billion and Gemini a sizable $13.5 million.

Gemini and Genesis have stated that they, as well as Genesis’ committee of unsecured creditors along with a group of Earn program lenders, reached an agreement to settle the litigation and give back the frozen funds.

As per the settlement, Genesis is expected to give back 97% of crypto-assets that had been lent to it as part of the Earn program to Gemini. This should reportedly be done within 5 days of the agreement becoming officially effective.

The said agreement may take effect towards the end of this month, following the typical 14-day timeframe — between when a 9019 or settlement motion, gets cleared to the time when it goes into effect — expires.

Genesis intends to give back the outstanding 3% of funds at a future date after it has gone after claims against its parent firm, crypto VC company Digital Currency Group Inc.

The recent settlement enables Gemini to put forth a $7.5 million claim in the case, as well as a condition linked to the settlement enabling it to seek a $1 billion claim for Earn clients.

Anson Frelinghuysen of Hughes Hubbard & Reed LLP, who is the appointed Counsel for Gemini, stated that the settlement was reached following more than a year of tense discussions and litigation.

Frelinghuysen remarked:

“This is a landmark day that sets in motion the final steps for the Gemini [Earn] lenders to receive a recovery. We are here today on the threshold of success.”

They also mentioned that Gemini believes it should be able to give back the first installment of crypto-assets to Earn clients in late May or June of 2024.

Legal representatives for Genesis stated that the settlement agreement is a key move forward in its ongoing plan to give back frozen funds to clients if Judge Lane clears the firm’s suggested Ch. 11 plan.

During the hearing, O’Neal had said:

“We want to be in a position to make distributions as soon as possible under this plan or another plan.”

He noted that Genesis is working cooperatively with other creditors to establish claim amounts and initiated “know your customer” efforts to get contact info for creditors who own crypto-assets store on the platform.

Judge Lane has reportedly agreed to approve the settlement and also said that he’s presently working on his decision on Genesis’ contested Ch. 11 plan following a confirmation hearing that concluded back in March.

The Judge stated:

“It will come as no surprise, it takes some time to put these things together. You can’t do these things in a half-baked way.”

Genesis is represented by Sean A. O’Neal, Luke A. Barefoot, Jane VanLare, Thomas S. Kessler, David Schwartz and Katharine Ross of Cleary Gottlieb Steen & Hamilton LLP.

Gemini is represented by Anson B. Frelinghuysen of Hughes Hubbard & Reed LLP.

On April 16, 2024 (Tuesday), the team at Gemini also confirmed the following:

“At today’s hearing, the Bankruptcy Court orally approved the global settlement agreement among Gemini, Genesis, and other creditors in the Genesis Bankruptcy. This marks another milestone in the process to achieve a full recovery of Earn users’ digital assets. The settlement provides that initial distributions to you will be approximately 97% of the digital assets owed to you as of the suspension date (November 16, 2022) and we expect that initial distributions will occur in late May or early June. The remainder of distributions will occur as recoveries are made from Digital Currency Group, Inc. (DCG). As a reminder, you can check the amount owed to you by Genesis by logging into your Gemini account through the Gemini website or the Gemini mobile app and clicking on “pending balance.”

They further noted that:

“Distributions under the settlement agreement cannot occur until the Bankruptcy Court enters the order approving it and other conditions to effectiveness of the settlement agreement are met. The Bankruptcy Court has not yet entered the order. We anticipate the order to be entered in the coming days. We will continue to post further updates regarding the timing of distributions as they become available.”

The case is In re: Genesis Global Holdco LLC et al., case number 1:23-bk-10063, in the U.S. Bankruptcy Court for the Southern District of New York.

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