In re Genesis Glob. Holdco, LLC

660 B.R. 439

IN RE GENESIS GLOBAL HOLDCO, LLC, et al., Debtors.

Case No. 23-10063 (SHL)

United States Bankruptcy Court, S.D. New York

Signed May 17, 2024

CLEARY GOTTLIEB STEEN & HAMILTON LLP, Counsel for the Debtors, One Liberty Plaza, New York, New York 10006, By: Sean A. O'Neal, Esq., Luke A. Barefoot, Esq., Jane VanLare, Esq., Thomas S. Kessler, Esq., Andrew Weaver, Esq., Rishi N. Zutshi, Esq.

WEIL, GOTSHAL & MANGES LLP, Counsel for Digital Currency Group, Inc. and DCG International Investments Ltd., 767 Fifth Avenue, New York, New York 10153, By: Jeffrey D. Saferstein, Esq., Jonathan D. Polkes, Esq., Caroline Hickey Zalka, Esq., Jessica Liou, Esq., Furqaan Siddiqui, Esq., 2001 M Street NW, Suite 600, Washington, DC 20036, By: Joshua M. Wesneski, Esq.

MCDERMOTT WILL & EMERY LLP, Counsel for the Genesis Crypto Creditors Ad Hoc Group, One Vanderbilt Avenue, New York, New York 10017-3852, By: Darren Azman, Esq., Joseph B. Evans, Esq., J. Greer Griffith, Esq., Lucas B. Barrett, Esq., 333 SE 2^nd Avenue, Suite 4500, Miami, Florida 33131-2184, By: Gregg Steinman, Esq. Kelly Shami, Esq.

WILLIAM K. HARRINGTON, United States Trustee, Office of the United States Trustee, Alexander Hamilton Custom House, One Bowling Green, Suite 515, New York, New York 10004, By: Greg Zipes, Esq. Tara Tiantian, Esq.

PROSKAUER ROSE LLP, Counsel for the Ad Hoc Group of Genesis Lenders, Eleven Times Square, New York, New York 10036, By: Brian S. Rosen, Esq., 70 West Madison, Suite 3800, Chicago, Illinois 60602, By: Jordan E. Sazant, Esq.

WHITE & CASE LLP, Counsel for the Official Committee of Unsecured Creditors 1221 Avenue of the Americas New York, New York 10020, By: J. Christopher Shore, Esq., Philip Abelson, Esq., Colin T. West, Esq., Michele J. Meises, Esq., 200 South Biscayne Boulevard, Suite 4900, Miami, Florida 33131-2352, By: Amanda Parra Criste, Esq.

KATTEN MUCHIN ROSENMAN LLP, Counsel for Teddy André Amadéo Gorisse, 50 Rockefeller Plaza, New York, New York 10020-1605, By: Steven Reisman, Esq., Shaya Rochester, Esq. Julia Mosse, Esq., 2029 Century Park East, Suite 2600, Los Angeles, California 90067-3012, By: Patrick Smith, Esq.

PRYOR CASHMAN LLP, Counsel for the Ad Hoc Group of Dollar Lenders, 7 Times Square, New York, New York 10036-6569, By: Seth H. Lieberman, Esq., Matthew W. Silverman, Esq., Daniel I. Brenner, Esq.

WESTERMAN BALL EDERER MILLER ZUCKER & SHARFSTEIN, LLP, Counsel for the New York State Office of the Attorney General on behalf of the People of the State of New York, 1201 RXR Plaza, Uniondale, New York 11556, By: Thomas A. Draghi, Esq., William C. Heuer, Esq., Alexandra Troiano, Esq.

HUGHES HUBBARD & REED LLP, Counsel for Gemini Trust Company, LLC, One Battery Park Plaza, New York, New York 10004, By: Anson B. Frelinghuysen, Esq., Dustin P. Smith, Esq., Erin E. Diers, Esq., Elizabeth A. Beitler, Esq. OTTERBOURG P.C., Counsel for SOF International, LLC, 230 Park Avenue, New York, New York, 10169, By: James V. Drew, Esq.

MEDINA LAW FIRM LLC, Counsel for BAO Family Holding LLC, 641 Lexington Avenue, Thirteenth Floor, New York, New York 10022, By: Eric S. Medina, Esq.

U.S. SECURITIES AND EXCHANGE COMMISSION, 950 East Paces Ferry Road, N.E., Suite 900, Atlanta, Georgia 30326, By: William M. Uptegrove, Esq., 100 F Street, N.E., Washington, D.C. 20549, By: Therese A. Scheuer, Esq.

MCELROY, DEUTSCH, MULVANEY & CARPENTER, LLP, Counsel for the New Jersey Bureau of Securities, 570 Broad Street, Newark, New Jersey 07102, By: Jeffrey Bernstein, Esq., 225 Liberty Street, 36th Floor, New York, New York 10281, By: Virginia T. Shea, Esq.

TEXAS STATE SECURITIES BOARD AND TEXAS DEPARTMENT OF BANKING, Bankruptcy & Collections Division, P.O. Box 12548, Austin, Texas 78711-2548, By: Layla D. Milligan, Esq., Roma N. Desai, Esq., Sean Flynn, Esq., Stephanie Eberhardt, Esq.

THE LAW OFFICES OF RICHARD J. CORBI PLLC, Counsel for Chainview Capital Fund, 1501 Broadway, 12^th Floor, New York, New York 10036, By: Richard J. Corbi, Esq.

MEMORANDUM OF DECISION

Sean H. Lane, UNITED STATES BANKRUPTCY JUDGE

Table of Contents

INTRODUCTION . . . 454

BACKGROUND . . . 457

I. Debtors' Prepetition Business Operations . . . 457

II. Bankruptcy Filing and Plan Negotiations . . . 459

III. The NYAG Action and the NYAG Settlement Agreement . . . 463

IV. The Settlement Motion . . . 466

V. The Plan . . . 467

VI. The Request for Confirmation and Objections . . . 472 DISCUSSION . . . 475

I. The NYAG Settlement Motion . . . 475

A. Legal Standard . . . 475

B. The NYAG Settlement Agreement Satisfies the Iridium Factors . . . 477

C. DCG's Remaining Arguments as to the NYAG Settlement . . . 484

1. Privilege . . . 484

2. Sub Rosa Plan . . . 485

II. Confirmation of the Plan . . . 490

A. Settlement Among Creditors . . . 490

B. DCG's Standing to Object to the Distribution Principles . . . 495

C. DCG's Other Objections to Confirmation . . . 506

1. Setoff Principles . . . 506

2. Corporate Governance . . . 509

D. CCAHG's Objections to Confirmation . . . 513

1. Administrative Priority . . . 513

2. Executory Contracts . . . 515

3. Debtor Releases . . . 519

a. Motion in Limine . . . 520

b. CCAHG's Substantive Objection . . . 524

E. UST Objections . . . 527

1. Exculpation . . . 527

2. Substantial Contribution . . . 531

F. Confirmation Requirements . . . 533 CONCLUSION . . . 533

Before the Court are two hotly contested matters in the above-captioned cases. The first is the Debtors' Motion for Entry of an Order Approving a Settlement Agreement Between the Debtors and the New York State Office of the Attorney General [ECF No. 1275]¹ (the "NYAG Settlement Motion"), which seeks approval of a settlement between the above-captioned debtors (collectively, the "Debtors")² and the Office of the New York Attorney General ("NYAG") under Rule 9019 of the Federal Rules of Bankruptcy Procedure.³ The second is confirmation of the Debtors' Amended Joint Chapter 11 Plan [ECF No. 1392] (as further amended and supplemented, the "Plan").

An evidentiary hearing was held on both the NYAG Settlement Motion and confirmation of the Plan from February 26, 2024 through February 28, 2024, with closing arguments on the NYAG Settlement Motion taking place on February 28, 2024 and closing arguments on confirmation of the Plan on March 18, 2024 (collectively, the "Evidentiary Hearing"). See generally Hr'g Tr. (Feb. 26, 2024) [ECF No. 1674]; Hr'g Tr. (Feb. 27, 2024) [ECF No. 1679]; Hr'g Tr. (Feb. 28, 2024) [ECF No. 1675]; Hr'g Tr. (Mar. 18, 2024) [ECF No. 1508]. This Memorandum of Decision constitutes the Court's findings of fact and conclusions of law for both the NYAG Settlement Motion and confirmation of the Plan. For the reason set forth in more detail below, the Court will approve the NYAG Settlement Motion and confirm the Plan over the objections filed against each.

As to the settlement, the Court finds that the NYAG Settlement Agreement is reasonable given all of the facts and circumstances in the record. The NYAG Settlement Agreement resolves, solely with respect to the Debtors, an action commenced by NYAG in the Supreme Court of the State of New York, County of New York, styled The People of the State of New York v. Gemini Trust Co. et al., Case No. 452784/2023 (the "NYAG Action"). It also provides for allowance of proofs of claim numbered 855, 856 and 857 filed by NYAG in the Debtors' Chapter 11 cases. See generally SEC/NYAG Ex. 16 (the "NYAG Claims").⁴ Both the NYAG Claims and the NYAG Action allege, among other things, that the Debtors and certain other co-defendants used fraudulent practices and engaged in fraudulent and illegal acts to defraud their investors, who are the customers holding unsecured claims in these cases. The NYAG Settlement Motion is supported by various creditor groups in these cases, including the Official Committee of Unsecured Creditors appointed in the Debtors' bankruptcy cases (the "Committee"), an Ad Hoc Group of the Debtors' lenders holding approximately $2.5 billion in claims asserted against the Debtors (the "Ad Hoc Group") and NYAG itself.⁵ Only Digital Currency Group, Inc. ("DCG")—the Debtors' equity holder and a co-defendant in the NYAG Action—objects to the settlement.⁶ DCG presents only a conclusory argument as to the substantive terms of the NYAG Settlement Agreement, instead focusing on its contention that there was an inadequate process used to reach the result. But the record here is more than sufficient to justify both the process and actual terms of the NYAG Settlement Agreement itself. In overruling DCG's objection, the Court ultimately concludes that its objection is a result oriented one based on DCG's lack of recovery as an equity holder under the Plan. But as discussed below, there are nowhere near enough assets to provide any recovery to DCG in these cases. In the end, DCG has not presented any basis for concluding that the NYAG Settlement Agreement is anything but reasonable and appropriate.

As to confirmation, the Court finds that the Plan should be confirmed because it satisfies all requirements of applicable law. Broadly speaking, the Plan provides for all of the Debtors' limited assets to be paid to its unsecured creditors. Like the NYAG Settlement Agreement, the Plan enjoys the wide support of the creditors here, including the Committee, the Ad Hoc Group, the Ad Hoc Dollar Group and one of the Debtors' individual investors named Teddy André Amadéo Gorisse (collectively, the "Plan Proponents").⁷ The Court has three remaining objections to confirmation: 1) DCG; 2) the Genesis Crypto Creditors Ad Hoc Group ("CCAHG"); and (3) the Office of the United States Trustee (the "UST").⁸ In approving the Plan, several principles of restructuring are particularly important. The first is the concept of standing, which determines "whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues" and involves "both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise." Warth v. Seldin, 422 U.S. 490, 498, 95...