- Digital Currency Group (DCG) has agreed to pay $38 million to settle SEC charges over its bankrupt subsidiary, Genesis Global Capital
- The SEC alleged that DCG misled investors about Genesis’s financial health following the collapse of a major borrower in 2022
- The settlement resolves claims of negligent misrepresentation and violations of federal securities laws
Digital Currency Group has agreed to a $38 million settlement with the Securities and Exchange Commission (SEC) to address charges stemming from the activities of its subsidiary, Genesis Global Capital. The SEC alleged that DCG misled investors about Genesis’s financial stability during 2022, culminating in Genesis filing for bankruptcy in early 2023, weeks after telling its customers that everything was fine.
Misrepresentation in the Wake of Financial Collapse
Genesis Global Capital’s issues began during the 2022 crypto crash when it encountered severe financial strain after one of its largest borrowers, Three Arrows Capital, defaulted on $2.4 billion in loans. According to the SEC, this default exposed Genesis to a $1 billion shortfall, which DCG attempted to hide; in a June 2022 tweet, Genesis claimed its balance sheet was strong, a statement the SEC described as “materially false or misleading.”
DCG issued a $1.1 billion promissory note to Genesis in June 2022, which artificially bolstered the subsidiary’s balance sheet. However, this action failed to address the company’s liquidity crisis. By November 2022, Genesis halted withdrawals, filing for bankruptcy in January 2023.
SEC Allegations and Settlement
The SEC charged DCG under Section 17(a)(3) of the Securities Act, which prohibits negligence-based fraudulent conduct in securities offerings, and emphasized in a filing Friday that DCG’s actions created a false impression of financial stability, misleading investors. The settlement includes a $38 million civil penalty, and DCG has agreed to comply with a cease-and-desist order.
“The findings underscore the importance of transparency in the financial markets,” the SEC noted, citing the need for investor protection in the volatile crypto industry. The case represents a broader crackdown on crypto-related firms, echoing former SEC Chair Gary Gensler’s approach to enforcing securities laws within the crypto space.
