- Genesis has won a legal battle to prevent its parent company from altering its ownership stake until the conclusion of Chapter 11 bankruptcy proceedings
- The move is crucial for Genesis to secure tax benefits amounting to approximately $700 million in federal net operating loss carryforwards
- These carryforwards are vital for Genesis to reduce its federal income tax liability in current and future years
Genesis, the beleaguered crypto lender that filed for bankruptcy in January, has won a legal battle to prevent its parent company, Digital Currency Group (DCG), from altering its ownership stake until the conclusion of Chapter 11 bankruptcy proceedings. The move is crucial for Genesis to secure tax benefits amounting to approximately $700 million in federal net operating loss carryforwards. These carryforwards are vital for Genesis to reduce its federal income tax liability in current and future years, making them a pivotal factor in its financial recovery and successful reorganization.
Digital Currency Group Can’t Amend Stake
Genesis filed for bankruptcy in January owing around $3 billion, and Monday’s court order imposes restrictions on any changes to DCG’s ownership stake in Genesis, safeguarding specific tax advantages tied to Genesis’s position within DCG’s tax-consolidated group. The benefits could be forfeited if DCG’s stake drops below 80%, potentially leading to a loss of nearly $700 million in federal net operating loss carryforwards.
The origin of these carryforwards can be traced back to the 2022 collapse of the crypto hedge fund Three Arrows Capital (3AC), the failure of which had widespread repercussions in the crypto industry, causing significant losses for various lenders, including Genesis.
As a result of 3AC’s defaulted loans and failure to meet margin calls, loans extended to 3AC were liquidated by Genesis, contributing to financial difficulties and ultimately leading to the bankruptcy filing.
Deal Safeguards Taxation Advantages
By preventing any alterations in DCG’s ownership stake, the court’s ruling aims to ensure Genesis maintains the necessary ownership structure to leverage the tax benefits associated with its operating losses, contributing to its financial stability and recovery efforts amid broader industry challenges.
