On February 21, venture capital firm Digital Currency Group (DCG) filed an objection to the settlement agreement entered into by its bankrupt subsidiary, crypto lender Genesis, with the New York Attorney General's Office (NYAG). According to the objection, which is only available in redacted form, NYAG's settlement agreement bases payments to unsecured creditors on the valuation of assets as of the distribution date, rather than providing them with a payment based on the petition date, as required by the Bankruptcy Code.
The U.S. Supreme Court has ruled that a court cannot allow a settlement to violate the Bankruptcy Code, said the objection. Moreover, the settlement "simply hands over to NYAG (and ultimately to the unsecured creditors) any residual value remaining in the Debtors' assets after the unsecured creditors have been paid," which would "deprive DCG, a creditor and equity holder, of a fair opportunity to participate in the cascade under the Debtors' plan" by "literally directing the disposition of the Debtors' residual assets after the satisfaction of the unsecured creditors' claims."
Under the agreement, NYAG would receive payment on its claims only after unsecured creditors had been paid. As the sole holder of Genesis shares, DCG is a secured creditor.
Implications of the DCG Objection
DCG's objection to Genesis' settlement agreement with NYAG raises important questions about how payments to unsecured creditors are handled in bankruptcy cases. If the objection is successful, it could have implications for other bankruptcy cases involving payments to unsecured creditors. It could also have implications for the relationship between companies and regulators, as it could prompt companies to challenge settlement agreements with regulators if they believe these agreements violate the Bankruptcy Code.
Ultimately, DCG's objection underscores the importance of transparency and compliance in the crypto-currency industry. Companies need to be able to trust regulators to comply with existing laws and regulations, and regulators need to be able to trust companies to comply with settlement agreements. If these relationships of trust are broken, it could have negative consequences for the crypto-currency industry as a whole.
