Genesis seeks court approval to sell $1.6 billion in crypto trust shares

Genesis Global Capital, a crypto lending firm that filed for bankruptcy last month, has asked a judge to approve the sale of its trust assets, which include nearly $1.4 billion in shares of Grayscale Bitcoin Trust (GBTC).

The company, which is a subsidiary of the Digital Currency Group, the parent company of Grayscale Investments, also wants to sell its shares of Grayscale Ethereum Trust (GETH) and Grayscale Ethereum Classic Trust (GETC), worth about $200 million in total.

According to a motion filed on Sunday with the U.S. Bankruptcy Court in the Southern District of New York, Genesis is seeking authorization to sell the trust assets to maximize their value and pay off its creditors. The company claims that the trust assets are subject to significant price volatility and liquidity risk, and that selling them now would avoid further losses.

The motion also requests the court to shorten the notice period and hold a hearing on the sale motion on Thursday, February 8, the same day as the next scheduled status conference in the bankruptcy case.

The trust assets are part of the collateral that Genesis pledged to Gemini, a crypto exchange and custodian, as part of its participation in the Gemini Earn program, which allowed Genesis to lend out its crypto holdings and earn interest. However, the program was shut down by the Securities and Exchange Commission (SEC) in January, after the regulator accused Genesis of violating securities laws and operating an unregistered securities offering.

The SEC also alleged that Genesis failed to disclose the risks and conflicts of interest involved in the program, and that it misrepresented the nature and value of the trust assets. The SEC sued Genesis and its CEO, Michael Moro, and sought to freeze their assets and impose civil penalties.

Earlier this week, Genesis agreed to settle the SEC’s charges by paying a $21 million fine, which would be deducted from the proceeds of the sale of the trust assets. The settlement is subject to court approval.

However, the ownership of some of the trust assets is still in dispute, as Genesis claims that it is entitled to 31,180,804 additional GBTC shares (worth about $1.2 billion) that were pledged to Gemini but never transferred. Genesis argues that these shares are part of its bankruptcy estate and should be included in the sale motion. Gemini, on the other hand, contends that these shares belong to it and that Genesis has no right to sell them.

The court has not yet ruled on this issue, which could have a significant impact on the outcome of the bankruptcy case and the distribution of the trust assets.

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