Thomas Daniels
In a notable legal update, a judge has ruled that the Digital Currency Group (DCG) cannot make any changes in ownership within its subsidiary, Genesis, until DCG successfully exits bankruptcy. This decision is designed to protect Genesis, which is part of DCG’s tax consolidated group, and offers specific advantages to the cryptocurrency lender during its bankruptcy.
These protective measures will stay in place either until a Chapter 11 bankruptcy plan is effectively implemented or if the bankruptcy shifts to a Chapter 7 case, which would mean the liquidation of the business.
Since late November, Genesis has been advocating for DCG to retain more than 80% ownership. This is crucial for preserving the value of its parent company’s interest in the federal net operating loss (NOL) carryforwards within the DCG Group. NOL carryforwards are a tax benefit that allows Genesis to offset future profits with past losses. Genesis claims these losses, which amount to over $700 million, are due to the failure of the digital asset hedge fund Three Arrows Capital in repaying loans from Genesis Asia Pacific.
Genesis filed for bankruptcy in January following the collapse of FTX and has been involved in legal disputes with Gemini regarding their suspended Earn program. The financial strain led to the suspension of this program. The legal battles involve significant sums, with Gemini seeking $1.1 billion for 230,000 Earn customers, and Genesis trying to recover $689 million from Gemini.
Moreover, DCG, Genesis, and Gemini are facing a lawsuit from the New York Attorney General, who accuses them of engaging in a “fraudulent scheme” related to the Earn product.
