Judge Rules Digital Currency Group Prohibited from Ownership Changes within Genesis
In a recent legal development, a judge has ruled that Digital Currency Group (DCG) is prohibited from making ownership changes within Genesis until DCG successfully exits bankruptcy. This decision safeguards Genesis under DCG’s tax consolidated group, granting specific benefits to the crypto lender amidst its bankruptcy status.
Protective Benefits for Genesis
The protective benefits will remain in force until the effective date of a Chapter 11 plan or if the bankruptcy transitions to a Chapter 7 case, resulting in business liquidation. Genesis had argued that DCG should maintain a stake above 80% to preserve the potential value of its holding company’s interest in the federal net operating loss (NOL) carryforwards of the DCG Group.
Net Operating Loss Carryforwards
Net operating loss carryforwards serve as a tax advantage, enabling Genesis to deduct losses from future profits. Genesis estimated over $700 million in NOLs generated, which were attributed to the failure of digital asset hedge fund Three Arrows Capital to repay loans from Genesis Asia Pacific.
Disputes with Gemini and Lawsuit from New York Attorney General
Filing for bankruptcy in January after FTX’s collapse, Genesis has been entangled in disputes with Gemini over their Earn program, which was suspended amid financial turmoil. The legal wrangling involves substantial amounts, with Gemini seeking $1.1 billion from 230,000 Earn customers and Genesis pursuing $689 million from Gemini.
Additionally, DCG, Genesis, and Gemini face a lawsuit from the New York Attorney General, alleging a “fraudulent scheme” related to the Earn product.
Hot Take: Judge’s Ruling Provides Stability for Genesis
The recent ruling by the judge provides much-needed stability for Genesis amidst its bankruptcy proceedings. By prohibiting ownership changes within Genesis until DCG successfully exits bankruptcy, the judge ensures that Genesis remains under DCG’s tax consolidated group and can benefit from specific protections.
This decision also highlights the importance of maintaining a stake above 80% to preserve potential value, particularly in terms of federal net operating loss carryforwards. With ongoing disputes with Gemini and a lawsuit from the New York Attorney General, Genesis continues to face significant legal challenges that will shape its future.
By
By
By
By
By