Digital Currency Group will pay $38 million to settle SEC charges filed over the crypto firm's bankrupt Genesis Global Capital lending unit. Securities regulators accused Digital Currency Group of misleading investors and negligence in relation to the failing division. DCG has settled the charges without admitting to or denying them.
"In mid-June 2022, a large borrower defaulted on a margin call, which compromised GGC’s business," Friday's SEC filing reads. "Yet, Digital Currency Group negligently engaged in conduct that misleadingly downplayed the impact of that default and overstated what Digital Currency Group did to help GGC in the aftermath. In short, Digital Currency Group’s failure to exercise reasonable care created a materially false impression to the public regarding GGC’s financial health."
You can also find out more about the following: "large borrower" in question is Three Arrows Capital, the once-prominent crypto hedge fund that flamed out in 2022 amid the collapse of Terra's crypto ecosystem. Per the SEC filing, the bankrupt Three Arrows Capital had $2.4 billion worth of outstanding loans from Genesis, and DCG knew that Genesis was set to lose at least $1 billion from the fund's collapse. The SEC stated that DCG and Genesis continued to pretend that their business wasn’t threatened, even though it was.
DCG executives ordered their employees and those of the company's subsidiary Genesis Global Capital to publicly “project strength” about the lending firm's financial condition in summer 2022, the SEC alleged in its complaint.
Genesis has posted to X (formerly Twitter). “materially false or misleading” The SEC said that Genesis made a strong statement regarding its balance sheet. That's despite the fact Genesis was poised to sustain at least $1 billion in losses due to its borrower Three Arrows Capital's collapse. Similarly, Genesis's then-CEO Soichiro "Michael" Moro Tweeted that his company had “shed the risk” associated with Three Arrow Capital’s default on its $2.4 billion loan—a claim that was also “false,” The SEC has a lot to say about this.
Digital Currency Group reviewed all tweets, but “failed to exercise reasonable care in connection with their publication,” Federal regulators are added.
Moro, according to an SEC document, will pay another $500,000 for his part in the case.
“We are pleased to have concluded an extensive investigation process that was limited in its findings and focused on the social media posts and communications made by our former operating subsidiary, Genesis Global Capital," a DCG spokesperson told Decrypt. "DCG has always strived to conduct its business with the highest integrity, and we believe our actions related to Genesis were consistent with that approach. This settlement allows us to focus on our growth initiatives and continue to embrace the positive momentum in the industry.”
Editor's note: This story was updated after publication with additional detail and a comment from DCG.
Andrew Hayward edited the book