Digital Currency Group Is Being Investigated By DOJ And SEC

Digital Currency Group Is Being Investigated By DOJ And SEC

The conglomerate which owns troubled crypto lender Genesis Global Capital is under investigation by the U.S Department of Justice and the Securities and Exchange Commission. Prosecutors are looking into financial communications between both companies.

Federal prosecutors with the U.S Department of Justice’s Eastern District of New York (EDNY) and the Securities and Exchange Commission (SEC) have launched an investigation into transactions between crypto conglomerate Digital Currency Group (DCG) and its subsidiary and lender Genesis Global Capital.

According to reports by Bloomberg, the DOJ has requested for documents and interviews from both companies, while the SEC is investigating DCG in a separate probe. The case which has not been made public yet is looking into financial transactions between both companies with relation to their exposure to crypto companies FTX, Three Arrows Capital (3AC) and Gemini.

The DOJ began looking into the activities of Genesis prior to the implosion of Sam Bankman-Fried’s crypto exchange FTX.

In June, ex-crypto hedge fund 3AC defaulted on a $2.3 billion loan from Genesis Global Trading, the brokerage arm of Genesis. The company had to write off the amount as bad debt after Three Arrows Capital filed for Chapter 11 bankruptcy protection in July, which negatively impacted Genesis’ balance sheet. Genesis then filed a claim against 3AC for $1.2 billion, which was assumed by DCG. As a result, Genesis has a $1.1 billion promissory note due to its parent company in 2023.

Digital Currency Group Is Being Investigated By DOJ And SEC

Things went from bad to worse for the crypto lender in November. After FTX filed for bankruptcy, Genesis, which issued $130 billion worth of loans in 2021, had to pause customer withdrawals and issuance of new loans. The company then revealed that its derivatives unit had $175 million worth of assets locked in a trading account on the collapsed crypto exchange. Genesis tried to raise $1 billion from various investors in a desperate effort to stay afloat. However, the crypto bank failed to work out the deal, and to ease tensions, DCG made an equity infusion of $140 million into Genesis.

DCG also borrowed money from Genesis in November, bringing the total amount owed to the crypto lender by its parent company to $575 million, which is due this May. According to a report by CoinDesk, creditors have made claims upwards of $1.8 billion against Genesis.

Genesis also fell into trouble with cryptocurrency exchange Gemini. The crypto lender owes $900 million to Gemini Earn customers, a high yield earning crypto lending product released by the exchange. Genesis was the main lending partner of Gemini Earn. Last week, the exchange’s co-founder Cameron Winklesvoss wrote an open letter accusing Digital Currency Group CEO Barry Silbert for engaging in “bad faith stall tactics”. Winklevoss said that his company has been waiting for a response from Genesis for over six weeks to recover locked funds. The Gemini co-founder claims that his team had sent two proposals to DCG to reach a resolution, to which the company failed to respond. However, Silbert says that DCG did respond to the proposals but has not received any reply from the New York-based crypto exchange.

Genesis is working with advisors to find a solution to its current situation and is also exploring the option for a potential Chapter 11 bankruptcy filing. On January 5, the company announced that it was laying off 30% of its workforce as part of “reducing costs and driving efficiencies in all business lines”, according to Derar Islim, Interim CEO of Genesis.

In response to queries from several news outlets, a spokesperson for Digital Currency Group said that the company has always conducted its business “lawfully” and has no knowledge of any investigation by the Department of Justice or the SEC into its activities.

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