Genesis Completes Debt Restructuring

Cleary Gottlieb represented Genesis Global Capital LLC (Genesis) and certain of its affiliates in achieving the completion of its restructuring effective on August 2, 2024.

On the effective date, Genesis distributed approximately $4 billion in digital assets and U.S. dollars to creditors pursuant to the chapter 11 plan confirmed by the U.S. Bankruptcy Court for the Southern District of New York on May 21, 2024. This distribution adds to the approximately $2.2 billion distribution Genesis made to Gemini Trust Company LLC (Gemini) earn users between May and June 2024.

Unlike other crypto bankruptcy cases, Genesis did not seek to cap creditor recoveries at their petition date value. Instead, Genesis sought to provide restitution to creditors through the chapter 11 plan and a creative settlement with the New York Attorney General, providing in-kind recoveries on a coin-for-coin basis until creditors are paid in full, on an in-kind basis. As part of the initial distributions to creditors on the effective date:

• BTC creditors received 51% of their in-kind, coin-for-coin value (166% of their petition date value),
• ETH creditors received 66% of their in-kind, coin-for-coin value (153% of their petition date value), and
• U.S. dollar creditors received 100% of their in-kind and petition date value.

Cleary is working with the plan administrator to effectuate approximately $200 million in distributions to altcoin creditors as soon as practicable as well. Additional distributions will be made in the future, depending on asset recoveries, claims reconciliation, and litigation claims.

Genesis emerged from bankruptcy after a hard fought process since it filed for chapter 11 in January 2023. Accomplishments throughout the chapter 11 cases include, among others:

• Winning a hotly contested confirmation hearing over the objection of DCG (Genesis’ corporate parent), which had argued that all post-petition appreciation in value of crypto assets should not be distributed to creditors and should instead be distributed to DCG as shareholder.
• Negotiating and developing an unprecedented framework (known as the distribution principles) to allocate value among U.S. Dollar and crypto creditors.
• Reaching favorable settlements with multiple parties following intensive litigation, including:
  • $175 million settlement with FTX resolving billions of dollars in complex claims and potential litigation;
  • $33 million settlement with Three Arrows Capital for over $1 billion in disputed claims;
  • $2.2 billion settlement with Gemini, resulting in the full in-kind repayment of more than 225,000 Gemini earn users;
  • $21 million settlement with the Securities and Exchange Commission (SEC), including the SEC’s agreement to take no distributions before general unsecured creditors are paid in full; and
  • $3 billion settlement with the New York State Office of the Attorney General (NYAG), by which the NYAG agreed to waive all disgorgement and penalty claims, to subordinate its claim to all other non-governmental general unsecured creditors, and to create a victims’ fund, under which every penny distributed to NYAG from Genesis would be turned over to creditors in accordance with the distribution principles.

Additionally, Cleary advised Genesis on numerous litigations during the chapter 11 cases, including:

• Winning dismissal of Gemini’s claims asserting a security interest or constructive trust over more than $1 billion in assets;
• Defeating an ad hoc group’s objection to the FTX settlement;
• Obtaining more than $630 million in loan repayments from DCG through a novel turnover proceeding and consent judgment;
• Commencing a $40 million arbitration against DCG regarding late fees and enforcement costs related to certain prepetition loans;
• Commencing a $33 million adversary proceeding against DCG seeking repayment of amounts paid to Three Arrows Capital;
• Reconciling more than a thousand proofs of claim through more than 40 omnibus objections;
• Being named as American Lawyer’s “Litigators of the Week” for its confirmation victory and runner-up “Litigators of the Week” for the Gemini victory.