Genesis Global, a bankrupt cryptocurrency lender, has reached a settlement with New York Attorney General Letitia James over allegations of defrauding customers through its now-defunct Gemini Earn program.
The latest settlement aims to return assets to former Earn customers and other Genesis creditors, pending approval by a bankruptcy judge.
The lawsuit, filed by James in October against Genesis, Digital Currency Group (its parent company), and Gemini, accused the firms of misleading customers, resulting in losses of $1.1 billion. The recent court settlement, however, only addresses the claims against Genesis.
Under the settlement terms, Genesis has agreed to a deal without admitting any liability and announced it will cease its operations in New York. The company, planning to liquidate, has also proposed a plan to return digital assets like Bitcoin to its clients, although a judge might decide on repayment in cash. Recently, the bankrupt crypto lender also filed for asset sales while selling a large part of its GBTC shareholdings.
New York authorities have proposed prioritizing Genesis creditors in the Chapter 11 repayment process, whether the repayments are made in cryptocurrency or cash. This comes after Genesis reached a separate $21 million settlement with the SEC over its Earn program, allegedly involving unregistered securities offerings.
The agreement highlights a commitment to valuing digital assets closer to current market values for repayment purposes, a move supported by major Genesis creditors. This method contrasts with other bankrupt crypto firms, which valued assets at the time of their Chapter 11 filings.
However, Genesis’s proposed liquidation plan has met with resistance from Digital Currency Group. The parent company argues that the plan could give certain creditors an unfair advantage during the Chapter 11 process.
Genesis is scheduled to present its liquidation plan to Judge Sean Lane on Feb. 14. The presentation will include seeking approval for both the New York settlement and the liquidation strategy.
The Earn program enabled customers to earn interest by lending their digital assets, a practice the SEC claimed was equivalent to selling unregistered securities. Attorney General James charged Gemini with not fully disclosing the risks associated with the Earn program.
Furthermore, James alleged that Genesis and Digital Currency Group tried to hide over $1 billion in losses after the failure of the crypto hedge fund Three Arrows Capital, a claim both companies have refuted.