Genesis, its parent company Digital Currency Group (DCG), and crypto exchange Gemini have reached an agreement on an initial term sheet to settle issues that have left progress on Genesis' bankruptcy repayment plan at a standstill for the past two weeks.
According to a source familiar with the matter, the term sheet includes "a compromise and settlement of inter-company claims between Genesis and DCG, as well as issues revolving around Gemini."
"I'm pleased to say today that we have reached an agreement," Sean O'Neal a lawyer representing Genesis said later Monday afternoon, confirming the development.
As laid out in previous court documents, the plan include efforts to market Genesis assets and raise additional capital if those assets cannot be sold.
However, the latest plan also will include selling sister company, Genesis Global Trading as well as a "backup" equitization plan. The settlement will also restructure the debt DCG owes Genesis including $575 million in loans due in May ("BCG loans") and the $1.1 billion promissory note due in 2032 ("DCG note").
For the $575 million, DCG will issue a second lien term credit facility that will mature in June 2024. Under this facility, payouts will come in U.S. dollars, paying a 11.5% interest and bitcoin, paying a 5% interest.
The total loan amount is equal to $500 million according to O'Neal.
For the promissory note, DCG will issue a class of convertible preferred stock that can be converted into common equity for DCG or one of its subsidiaries, if mutually agreed upon.
O'Neal added that while details for the note disbursement are still being ironed out, if DCG fails to meet its listing requirement by June 2025, creditors will be entitled to cash dividends at a rate of 10.5%.
DCG will also contribute the first $25 million in recoveries from the bankruptcy of crypto hedge fund Three Arrows Capital.
While the sheet is not yet public, O'Neal said it will be made available "as early as tomorrow or even tonight."
Gemini will also contribute up to $100 million to the proposed plan for distribution to its Earn users.
"Gemini founders, Cameron and Tyler Winklevoss, are doing this because they believe in the debtor's organization and in the Gemini platform, and they want to do the right thing for our users," an attorney representing Gemini said.
Gemini, and DCG did not respond to requests for further comment.
Gemini's Cameron Winklevoss and DCG's Barry Silbert sparred over Twitter in January, with Winlevoss accusing Silbert of making "false statements and misrepresentations to Gemini." Silbert denied wrongdoing, calling the allegations a "publicity stunt."
At the center of this public spat were questions surrounding how Genesis' $1.1 billion note from DCG, which represented the liability for its losses from the default of hedge fund Three Arrows Capital in June 2022, should be counted. The note doesn’t reach maturity until 2032.
As a source first confirmed, the new plan includes offering creditors payment for the $1.1 billion note as equity.
To progress the case, the term sheet requires "thresholds for acceptance" from Genesis creditors, the source added, without offering further information. Creditors have the right to review the term sheet to decide if they want to accept it.
Cryptocurrency broker Genesis filed for bankruptcy on January 20 with hopes of delivering a speedy, prearranged plan.
Genesis owes creditors a total of $3.5 billion, a sum includes claims of at least $795.5 million owed to 340,00 Gemini Earn customers, many of which are retail investors. DCG, Genesis' parent company, owes the bankrupt firm approximately $1.65 billion.
The Securities and Exchange Commission has also charged both Genesis and Gemini for selling unregistered securities in connection with its Earn program.
The New York State Department of Financial Services, which regulates Gemini, is also investigating the exchange, Axios first reported. The agency will not comment on any ongoing investigations.
As Bloomberg first reported, the Justice Department is also investigating DCG for transactions between the company and Genesis, though DCG has not been accused of any wrongdoing at this time.
A spokesperson for Digital Currency Group told Yahoo Finance it has no knowledge of the investigation and "has always conducted business lawfully."
Update: story originally said term sheet would be available by the Monday afternoon hearing. At Monday hearing, a Genesis lawyer said the term sheet had not yet become public.
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