Important takeaways
- The SEC accused DCG and Genesis executives of misleading investors about financial stability after 3AC’s collapse.
- DCG and Genesis faced penalties and legal action for defrauding investors through misleading statements, with DCG agreeing to settle the SEC charges by paying a $38 million fine.
The SEC has filed charges against Digital Currency Group (DCG), its subsidiary Genesis Global Capital and former Genesis CEO Soichiro “Michael” Moro, alleged negligence and misleading statements that misrepresented Genesis’ financial health to investors.
Founded in 2015 by Barry Silbert and headquartered in Stamford, Connecticut, Digital Currency Group (DCG) is a prominent company in the crypto space.
It owns Grayscale Investments, the largest digital asset manager globally, and previously owned CoinDesk, a leading crypto media outlet that was sold to Bullish, a crypto exchange led by former NYSE president Tom Farley, in November 2023.
Founded in 2013 and credited with launching the first over-the-counter Bitcoin trading desk, Genesis faced serious financial turmoil after 3AC defaulted on loans totaling $2.4 billion.
This default caused a ripple effect, exposing Genesis to a deficit of at least $1 billion.
Despite the significant losses, DCG and Genesis issued public statements claiming that the company’s balance sheet was “strong” and that the risks associated with 3AC had “excluded”. The SEC alleges that these statements were materially false and misleading.
In an attempt to mask insolvency, DCG issued a $1.1 billion promissory note to Genesis on June 30, 2022.
This listing inflated Genesis’ balance sheet and avoided negative equity on a crucial reporting date, but the terms were not disclosed to investors.
The SEC alleges that this action misled stakeholders about Genesis’ financial condition.
Moro, who left Genesis in August 2022, is also being charged for his role in perpetuating these misrepresentations.
By November 2022, Genesis was overwhelmed by redemption requests and interrupted withdrawals, leading to its Chapter 11 bankruptcy filing in January 2023.
The bankruptcy disrupted its partnership with Gemini Trust Company’s Earn program, which had allowed customers to earn high interest on digital assets.
About 230,000 Gemini customers were affected, and Gemini and Genesis later agreed to a settlement to return digital assets to users.
In February 2024, New York Attorney General Letitia James expanded a lawsuit against Genesis, DCG and Gemini, alleging that the companies defrauded investors of over $3 billion through the Earn program by misrepresenting their risks.
The SEC has imposed a $38 million penalty on DCG, while Moro has fine $500,000.
Both have been issued cease-and-desist orders pursuant to Section 17(a)(3) of the Securities Act.
Barry Silbert, who has remained at DCG’s helm despite these challenges, recently announced new initiatives to shift the company’s focus.
In November 2024, he launched Yuma, a decentralized AI initiative leveraging the Bittensor network, signaling a potential comeback after the setbacks of the 2022 crypto crash.
