Genesis Ownership Restriction Upheld During Bankruptcy Proceedings, Decides Judge

Genesis has taken decisive legal action by formally requesting a New York bankruptcy court to enforce restrictions on any modifications to its ownership structure. This strategic maneuver is specifically designed to protect valuable tax advantages associated with operating losses amounting to approximately $700 million. In a noteworthy legal development, Genesis, a cryptocurrency lender currently undergoing bankruptcy proceedings, successfully secured a court order that bars its parent company, Digital Currency Group (DCG), from selling or diminishing its ownership stake in Genesis until the conclusion of Chapter 11 proceedings.

The significance of the court order lies in its affirmation of Genesis' deliberate strategy to safeguard specific tax benefits. These benefits are contingent upon Genesis maintaining its integral role within the tax-consolidated group, where DCG acts as the common parent. The prohibition on changes to ownership becomes pivotal in maintaining eligibility for these crucial tax advantages.

The motion, initiated in November and culminating in the court order, emphasizes the potential forfeiture of benefits for Genesis if DCG's ownership in the lender falls below the critical 80% threshold. The benefits at stake encompass approximately $700 million in "federal net operating loss carryforwards." As articulated in the motion, these carryforwards play a pivotal role in mitigating Genesis' federal income tax liability both in the present and future years. The resulting tax savings could have a significant impact, contributing to the overall financial health of the involved parties and bolstering the prospects of a successful reorganization.

The genesis of these tax benefits is intricately linked to the demise of the crypto hedge fund Three Arrows Capital in 2022, as detailed in the motion. Genesis, navigating the aftermath of a tumultuous year in the cryptocurrency space, formally filed for bankruptcy in January. This move aligned Genesis with several other high-profile firms that succumbed to financial challenges during the same period, marking a challenging chapter in the cryptocurrency industry.

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