Bankrupt crypto lender Genesis plans to seek mediation if creditor deal isn't struck this week

Crypto lender Genesis filed for bankruptcy last Thursday, but its lawyers have been in negotiations with creditors and its largest borrower — parent company Digital Currency Group (DCG) — for more than two months.

And in bankruptcy court on Monday afternoon, lawyers for Genesis said a deal with creditors still hasn't been reached and said if an agreement can't be reached "within the next few days," the firm is will ask the judge to appoint a mediator.

"We have a clear roadmap for this Chapter 11 case," Genesis counsel Sean O'Neal said. "We've filed a plan, and that plan is confirmable on its face."

Court documents filed the day after its bankruptcy petition show Genesis already had a restructuring plan drawn up, with hopes to sell its assets as soon as May. Genesis held $5.1 billion in liabilities in the weeks following its withdrawal freeze on Nov. 16, 2022.

The company's largest creditor is the combined 340,000 Gemini Earn customers who are owed $795.5, million according to a list of Genesis's largest creditors. Those customers have formed an "ad hoc" committee represented by law firm Kirkland & Ellis. Another group of around 60 institutional creditors, represented by Proskauer Rose, is owed $1.5 billion.

As its largest borrower at petition date, DCG owes Genesis at least $1.65 billion, including approximately $575 million in loans due in May 2023 and a $1.1 billion promissory note due in June 2032.

Genesis logo displayed on a phone screen is seen through the broken glass in this illustration photo taken in Krakow, Poland on December 1, 2022. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
Genesis logo displayed on a phone screen is seen through the broken glass in this illustration photo taken in Krakow, Poland on December 1, 2022. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

Prior to its bankruptcy filing, no agreement was reached on how Genesis should pay back creditors. In its negotiation with creditor groups and DCG, lawyers for Genesis said they had already gone through "15 iterations of various term sheets" since the lending business eliminated customer withdrawals in November.

"If we don't reach a conclusion by the end of this week, at least to a deal in principle, we will seek the appointment of a mediator," a lawyer for Genesis told the judge.

Working with financial advisor Moelis, Genesis hopes to find a buyer or financing source with an auction for its business targeted for 90 days after its Thursday petition.

If successful, creditors would see a recovery in the form of cash, digital assets, and equity shares from brokerage accounts in addition to proceeds from the auction sale.

As part of the deal, DCG is also proposing partly paying back Genesis creditors with its own equity.

'Run on the bank'

In the spring of last year, Genesis was forced to liquidate collateral for several customer loans, including $1.2 billion borrowed by defaulted crypto hedge fund Three Arrows Capital.

The company took a $1.1 billion loss on those loans, which DCG assumed in return for a promissory note.

Five months later, crypto exchange FTX imploded, taking with it $175 million in Genesis funds. As a declaration court document from Genesis' interim CEO Derar Islim revealed last Friday, customers attempted to recall $827 million in loans, which he called a "run on the bank."

Genesis has also hired its law firm Cleary Gottlieb to investigate transactions between the company and "DCG entities." The investigation includes focus on approximately $850 million in unsecured loans and the $1.1 billion promissory note Genesis Global Capital lent to DCG, according to a court filing.

In two open letters, Gemini co-founder and president Cameron Winklevoss claimed DCG CEO Barry Silbert and others misled Gemini in disclosing details of Genesis' financial health.

A representative for the U.S. Office of the Trustee said they had concerns related to Genesis' newly appointed board of directors and the committee leading its internal investigation, as both were appointed by DCG.

Genesis filed for Chapter 11 in the Southern District of New York on January 19. The case's court docket is available via Kroll.

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