SEC Charges DCG and Genesis, Fines $38M for Misleading Investors

The U.S. Securities and Exchange Commission (SEC) announced enforcement actions against Digital Currency Group (DCG) and its subsidiary Genesis on Friday, citing violations of securities laws.

The SEC accused DCG and Genesis of defrauding investors through misrepresentation, resulting in penalties and legal action. DCG agreed to settle the charges by paying a $38 million fine.

SEC Reveals Accounting Tricks Behind DCG’s ‘Strong’ Balance Sheet Claims

On January 17, the SEC ordered DCG to pay a $38 million civil penalty and issued a cease-and-desist order to prevent future misconduct.

The charges extend to DCG and its former CEO, Soichiro “Michael” Moro, who allegedly misled investors about the financial health of Genesis following the collapse of one of its largest borrowers, Three Arrows Capital (3AC), in mid-2022.

Moro, who served as CEO of Genesis during this period, was accused of approving misleading public statements and tweets that downplayed financial risks.

According to the SEC, Moro authorized posts claiming that Genesis had “shed the risk” associated with 3AC’s default and maintained a “strong” balance sheet, despite the company’s precarious position.

Additionally, Moro signed a $1.1 billion promissory note on behalf of Genesis, which the SEC described as perpetuating a false narrative about the company’s financial health.

As part of the enforcement action, Moro was fined $500,000 and barred from engaging in any negligent conduct that could mislead investors.

The SEC indicated that its findings against Moro could support ongoing investor lawsuits and regulatory actions.

The SEC also revealed that DCG executives were aware of over $1 billion in losses at Genesis but sought to portray financial stability.

DCG issued a $1.1 billion promissory note to Genesis, described by the SEC as an “accounting asset” with no tangible capital transfer.

These actions, coupled with undisclosed terms of the note, misled investors about the company’s true financial state.

By June 30, 2022, Genesis reported positive equity, but the company’s financial pressures continued to mount.

By November 2022, it suspended withdrawals, affecting customers of Gemini Earn and locking up $900 million in user assets.

Genesis and DCG Struggle with Fallout from 2022 Collapse

The financial troubles of Genesis began with the collapse of 3AC, which triggered liquidity issues, and worsened with the implosion of FTX later that year.

In January 2023, Genesis filed for Chapter 11 bankruptcy , disclosing over $3.5 billion in debts to its top 50 creditors, including major names like Gemini and VanEck.

Genesis’ parent company, DCG, borrowed $500 million across four loans in 2022. However, by May 2023, DCG had failed to repay $620 million, including 4,550 Bitcoin, prompting Genesis to file a lawsuit seeking full repayment plus fees.

In November 2023, DCG reached a settlement to repay the loans by April 2024, offering Genesis some relief in its bankruptcy proceedings.

By February 2024, Genesis and Gemini had reached a settlement to distribute $1.8 billion to users of Gemini Earn, pending court approval.

By May 2024, Genesis had distributed $2.18 billion worth of cryptocurrency to approximately 232,000 users, advancing its bankruptcy process.

Meanwhile, the Commodity Futures Trading Commission (CFTC) is pursuing penalties and corrective measures against Gemini Trust, with its trial now set for January 21, 2025.

This legal battle adds to the ongoing scrutiny faced by companies tied to DCG and Genesis.