On Friday, the U.S. Securities and Exchange Commission announced enforcement actions against Digital Currency Group and its subsidiary Genesis. The SEC cited violations of securities laws.
SEC imposed penalties and took legal action against DCG and Genesis for defrauding their investors by misrepresenting the facts. DCG settled the charges with a fine of $38 million.
SEC Reveals Accounting Techniques Behind DCG’s ‘Strong Balance Sheet’ Claims
The SEC issued an order on January 17 ordering DCG pay a civil penalty of $38 million and issued a stop-and-desist to prevent further misconduct.
Charges are also brought against DCG, and its former CEO Soichiro Moro. They are accused of misleading investors regarding the financial status of Genesis after the collapse of Three Arrows Capital, one of Genesis’ largest borrowers in mid-2022.
Moro was the CEO of Genesis at this time and he has been accused of having approved misleading tweets and public statements that minimized financial risk.
According to the SEC’s findings, Moro approved posts that claimed Genesis had “shed” the risk associated with 3AC defaulting and maintained a “strong balance sheet” despite its precarious situation.
Moro also signed a promissory $1.1 billion note for Genesis. The SEC said that this was a way to perpetuate a false narrative regarding the financial health of the company.
Moro was fined $5000 and prohibited from engaging in any negligence that could lead to misinforming investors.
The SEC stated that the findings it made against Moro may support investor lawsuits or regulatory actions.
The SEC revealed that DCG executives knew about the losses of more than $1 billion at Genesis, but tried to portray financial stability.
DCG issued to Genesis a promissory notes worth $1.1 billion, which was described by the SEC’s as an “accounting assets” without any tangible capital transfer.
The actions of the company, along with the terms of the unreported note, led investors to believe that the true financial status was not as good as it appeared.
Genesis will report positive equity by June 30, 2022. However, the financial pressures on the company continue to increase.
By November 2022 it would have suspended withdrawals. This would affect customers of Gemini Earn, and lock up $900,000,000 in assets.
Genesis & DCG Fight Fallout of 2022 Collapse
Genesis’ financial problems began in 2008 with the collapse 3AC. This led to liquidity issues and then worsened later that same year with the crash of FTX.
In January 2023, Genesis filed Chapter 11 bankruptcy and disclosed over $3.5 billion of debts to its 50 largest creditors, including names such as Gemini and VanEck.
DCG, Genesis’ parent company in 2022, borrowed $500,000,000 over four loans. By May 2023 DCG failed to pay $620 million including 4,550 Bitcoins, prompting Genesis’ lawsuit for full repayment and fees.
You may also enjoy
Genesis sues DCG over $600 million loan repayment
Genesis received some relief from its bankruptcy proceedings in November 2023 when DCG and Genesis reached an agreement to repay the loan by April 2024.
Genesis and Gemini reached an agreement in February 2024 to distribute $1.8 Billion to Gemini Earn users, subject to court approval.
Genesis’ bankruptcy was accelerated by May 2024 when it distributed approximately 232,000 bitcoins worth $2,18 billion to its users.
The Commodity Futures Trading Commission has been pursuing penalties against Gemini Trust and is now preparing its trial for 21 January 2025.
The ongoing scrutiny of companies linked to DCG and Genesis is heightened by this legal battle.
