Some Genesis creditors are deciding that it’s time to take the money and run — even if all they’re able to get is a fraction of what they paid into the bankrupt lender.
Earlier this week, Stephen Sokolowski, a crypto mining executive, sold his $4 million claim against Genesis for just $1 million, or $0.25 on the dollar. It was bought by a fund managed by investment bank Jefferies, according to a court filing.
It was the first publicly-disclosed sale of a Genesis bankruptcy claim, though other claims are listed and appear to have traded hands through Xclaim. This is a growing exchange for claims in crypto bankruptcies and is where Sokolowski’s claim was processed.
Jefferies declined to comment.
Sokolowski, who is the chief operating officer of Prohashing, said he thought his Genesis claim could be worth as much as twice what he got it for, based on the latest financials he’s seen. But he thinks he would only see a fraction of that this year if he had stuck with the bankruptcy process. What’s more, Sokolowski also said he’s lost faith in the information coming out from Genesis.
Prior to FTX’s collapse, Sokolowski spent over 100 hours analyzing the financials of crypto lenders and concluded that Genesis was among the safest. Sokolowski, like others, now believes Genesis’s financials, which he received directly from the lender, included misstatements. “The balance sheet was almost certainly false,” Sokolowski told Protos. “I don’t know at what point … but over time they got looser and looser with their loan terms, and common sense.”
Genesis didn’t return Protos’s request for comment for this story. In the past, Digital Currency Group (DCG), which is Genesis’s parent company, has called allegations that Genesis misstated its financial position “false” and a product of “defamatory attacks.”
Other creditors seem to be losing faith in getting repaid from Genesis. Earlier this month, Dutch exchange Bitvavo, which is owed as much as $300 million by Genesis, said it had rejected an offer from Genesis to repay the Dutch exchange at 70% of the value of what it is owed.
In December, Jefferies’s distressed debt team estimated that FTX bankruptcy claims could be worth as much as $0.40 on the dollar. But it also said the bankruptcy process was likely to result in a lower recovery rate.
The fact that Genesis bankruptcy claims are selling for less than that, suggests that the relative strength of Genesis’s financial might be on par with FTX. Prior to the bankruptcy, many creditors of Genesis, which halted withdrawals in mid-November, said they still believed they would be able to get all or most of what they had deposited with the lender back.
Xclaim’s website says Genesis bankruptcy claims are trading for as much as $0.35 on the dollar. The good news, Xclaim’s CEO Matthew Sedigh told Protos, is that there does seem to be a growing interest from traditional Wall Street firms, crypto hedge funds, and others in purchasing the bankruptcy claims of busted crypto lenders.
Among the firms that are reportedly looking to buy up the claims are Bank of America, Barclays, and Morgan Stanley. It’s not clear if those firms are looking on behalf of themselves or clients.
“Everyone is poking around,” Sedigh said. “We have processed more claims in the past five weeks than ever before.”