Genesis Global Capital (GGC), a New York-based subsidiary of Digital Currency Group (DCG), has launched two legal actions against both DCG and its international division, DCGI. The objective is to recover outstanding loans amounting to $600 million.
Genesis, which went bankrupt in January following a 30% staff reduction, claimed in its recent court submissions that both DCG and DCGI are wrongfully retaining assets that should be part of Genesis Global Capital’s bankruptcy estate.
On September 6, Genesis pursued the case in the U.S. Bankruptcy Court for the Southern District of New York. It contends that DCG and DCGI have not repaid multiple loans, summing up to roughly $620 million. These debts, which were due in May, include about 4,550 Bitcoin.
GGC is now pushing for the complete reimbursement of the loans, inclusive of interest and penalty charges. The company asserts that these funds are essential assets that can be utilized in their current bankruptcy proceedings, especially considering its massive $3.5 billion debt to its primary 50 creditors.
In 2022, DCG, the parent entity of both Genesis and DCGI, availed itself of loans from Genesis on four separate occasions, accumulating to a total of $500 million.
Furthermore, in June 2022, DCGI entered into a borrowing arrangement, taking out 18,697.7 BTC based on a loan agreement drafted in 2019.
The initial loan amount, which later transitioned to a fixed-term loan scheduled for repayment by May 11, 2023, underwent partial payment, leaving an outstanding balance of 4,550.5 BTC (equivalent to $116,875,000 at the time of reporting).
Comprehensive loan agreements encompassing DCG, Genesis, and DCGI were finalized, all with due dates marked for either May 9 or 10, 2023.
DCG and GGC Reached Agreement to Halt Lawsuit Over Loan Conversion Disagreement
On May 9, DCG communicated its desire to transition these loans into open loans, in line with a pre-existing agreement, a proposal that GGC did not approve of.
DCG’s documentation notes, “The DCG request on May 9 for repayment instructions for the loans, made at 10:37 p.m. (ET) on May 9, 2023, doesn’t align with the ‘timely’ request envisioned in the MLA.”
In a similar vein, DCGI put forward a proposition to Genesis to shift the debt back to an open loan status, a motion that GGC did not concur with. Consequently, the pending balance remains unsettled.
Nonetheless, this legal dispute will not escalate to a judgment phase. A representative from DCG clarified,
“Genesis has consented to pause the turnover action, facilitating our progress in documenting the preliminary agreement forged between Genesis, the UCC, and DCG. We’re in the process of drafting a forbearance agreement, which we anticipate presenting to the court soon. Following that, we’ll commence the fund distribution and remain committed to ensuring a substantial recovery for the Genesis creditors.”
On August 29, DCG entered into a provisional agreement with GGC’s unsecured creditors. This accord intends to repay them between 70% and 90% of the outstanding dollar amounts.
It’s crucial to highlight that neither the ad hoc creditors’ committee nor the cryptocurrency exchange Gemini have given their backing to this arrangement.
In a recent development on September 5, Genesis Global Trading, a New York firm associated with Genesis, declared its voluntary choice to cease its spot crypto trading services by September 18.
This decision is linked to certain unspecified business factors.