DCG Calls Out Genesis’ Settlement With New York as ‘Subversive

Digital Currency Group (DCG) has raised objections to the settlement reached between its subsidiary, Genesis, and the New York attorney general’s office. Genesis, a failed crypto lender, had been charged with defrauding investors. DCG argues that the proposed settlement allows Genesis to redistribute value to preferred creditors in violation of bankruptcy law and is a “subversive arrangement.” The objection comes as Genesis seeks to resolve legal challenges brought against it by various regulatory bodies.

Background

Digital Currency Group (DCG) and Genesis are two prominent entities in the cryptocurrency industry. DCG is a leading venture capital firm that focuses on investments in blockchain and digital currency companies, while Genesis is a subsidiary of DCG and a crypto lending platform.

However, both DCG and Genesis have recently faced charges of fraud and money laundering. The New York attorney general filed a lawsuit against DCG, Genesis, and another company, alleging that they defrauded investors and failed to implement sufficient money laundering controls.

To resolve these charges, Genesis proposed a settlement with the attorney general’s office. This settlement would require Genesis to pay a significant amount and implement stricter compliance measures.

DCG’s Objection

DCG has expressed its objection to the proposed settlement between Genesis and the New York attorney general. The main basis for DCG’s objection is the violation of absolute priority. DCG argues that the settlement would allow Genesis to allocate value to preferred creditors at the expense of lower classes of creditors, which goes against bankruptcy laws.

DCG also characterizes the settlement as subversive, claiming that it was put together secretly and at the last minute. According to DCG, the settlement lacks transparency and proper consideration of the merits of the claims against Genesis.

Jason Brown’s Support

Jason Brown, a former co-chief deputy of the attorney general’s office and a former senior federal attorney in New York, has expressed support for DCG’s objection to the Genesis settlement. Brown questions the settlement process and discussions, suggesting that the parties involved may not have thoroughly assessed the claims and reached a fair resolution.

Attorney General’s Response

At the time of writing, the attorney general’s office has not provided an immediate response to DCG’s objection. It remains to be seen how the attorney general will address the concerns raised by DCG and whether any modifications will be made to the proposed settlement.

Previous Settlements by Genesis

Prior to the proposed settlement with the New York attorney general, Genesis reached a settlement with the New York Department of Financial Services (DFS). As part of this settlement, Genesis agreed to pay an $8 million fine and surrender its New York BitLicense.

The BitLicense is a regulatory framework implemented by the DFS to govern virtual currency businesses operating in New York. Genesis’ surrender of the BitLicense indicates a significant consequence for its operations in the state.

Expanded Case by DFS

Following the settlement with the DFS, the department expanded its case against DCG and Gemini, another cryptocurrency company. The DFS alleges that DCG and Gemini were responsible for larger investor losses, which now amount to $3 billion, and accuses them of engaging in fraudulent activities related to the Gemini Earn program.

The expanded case has intensified the legal scrutiny faced by DCG and Genesis, as it brings additional allegations of fraud and increased losses incurred by investors.

Impact on Genesis

The objection raised by DCG and the ongoing legal proceedings have significant implications for Genesis. The approval of the proposed settlement by the bankruptcy court is now in question due to DCG’s objection. If DCG’s objection is upheld, it would potentially delay or alter the terms of the settlement.

Moreover, the negative attention surrounding the allegations of fraud and money laundering, as well as the subsequent legal actions, could have a lasting impact on Genesis’ operations and reputation within the cryptocurrency industry.

Implications for the Industry

The developments in the case involving DCG, Genesis, and the New York attorney general have broader implications for the cryptocurrency industry. The regulatory scrutiny faced by these entities highlights the need for increased oversight and investor protection within the crypto space.

As regulators continue to uncover instances of fraud and other illicit activities, it is likely that the industry will face more stringent regulations and compliance requirements. This could impact the way cryptocurrencies are traded, stored, and used, potentially shaping the future of the industry.

Future Legal Proceedings

The legal actions taken against DCG, Genesis, and Gemini are ongoing, and it is expected that further legal proceedings will take place. Depending on the outcomes of these proceedings, additional settlements or penalties may be imposed on the companies involved.

Investigations into the alleged fraud and money laundering activities are likely to continue, as authorities aim to hold accountable those responsible for the investor losses and ensure the implementation of appropriate safeguards in the industry.

CoinDesk’s Position

As an independent media outlet, CoinDesk is committed to journalistic integrity and unbiased reporting. CoinDesk aims to provide accurate and comprehensive coverage of the cryptocurrency industry, including news related to legal proceedings and regulatory developments.

CoinDesk will continue to monitor the case involving DCG, Genesis, and the New York attorney general, providing updates and analysis to its readers. The editorial committee at CoinDesk, chaired by a former editor-in-chief of The Wall Street Journal, will ensure that reporting maintains the highest standards of journalism.