A proposed $175 million agreement with the shuttered exchange FTX has drawn criticism from creditors of the insolvent cryptocurrency lender Genesis Global Capital (GGC), who are claiming that GGC used vote-buying to “manipulate” the bankruptcy procedure.The Thursday papers provide Genesis, which wants to finish up its business and start paying back former clients, yet another hardship.
After declaring bankruptcy in January, GGC has been at odds with its parent company Digital Currency Group (DCG) about how to handle more than a billion dollars in debt, and the tentative agreement hasn’t been well received by all of the creditors.
The two bankrupt firms entered into a new legal agreement in the middle of August that allows FTX’s Alameda Research to claim $175 million on the Genesis estate. This is a big decrease from the $4 billion that FTX had originally requested, but other creditors aren’t happy with that either.
“[Genesis’] proposed settlement with FTX is an attempt to manipulate the plan voting process… a sweetheart pre-plan deal,” said a late Thursday night filing by crypto exchange Gemini, which is owed some $766 million by Genesis, adding that the proposal “cannot be accepted at face value.”
Creditors are effectively charging Genesis with ballot-stuffing because bankruptcy plans must be approved by creditors in proportion to their claims.
“[Genesis], by entering into the Proposed Settlement, have sought to buy the support of the FTX Debtors, and their votes,” said a Thursday filing by a set of creditors which calls itself the Fair Deal Group. “This is, of course, a perversion of the Chapter 11 process.”
A spokesperson for Genesis did not immediately respond to request for comment. Genesis’ counsel has previously said the FTX deal will “significantly smooth the path” to reorganizing the company without the cost of extended litigation.
A further “ad hoc” group of creditors said the bid by FTX to claw back loans from its “criminal enterprise” was “ unconscionable,” adding that FTX’s strategy in claiming billions against Genesis had been “no more than throwing spaghetti against the wall to see what sticks.”
The ad hoc group has not disclosed its membership, although it has previously claimed that its members are owed a combined $2.4 billion by GGC, making up the majority of each class of claims.Previously, Gemini and other creditors challenged the DCG agreement and demanded that Genesis lose its exclusive authority to present wind-up plans.Gemini and DCG were both sued in July for what Gemini claimed to be “fraud” by Genesis, charges that DCG later referred to as “defamatory” and a “publicity stunt.”
The Genesis-FTX merger will be discussed by bankruptcy judge Sean Lane on September 6 during a hearing in the Southern District of New York.