Genesis and DCG Accused of Hiding $1 Billion Hole

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  • Letitia James has alleged that Genesis and DCG have hidden a $1 billion deficit in Genesis’ accounts
  • Her office has filed a motion opposing efforts to dismiss the lawsuit against DCG and its executives
  • The lawsuit has accused the group of lying to investors about Genesis’ financial position

New York Attorney General Letitia James has alleged that Genesis, Digital Currency Group (DCG), and the latter’s executives took steps to hide a $1 billion hole in Genesis’ accounts. Last week, her office filed a motion opposing DCG, its founder and CEO Barry Silbert, and former Genesis CEO Michael Moro’s effort to dismiss the lawsuit her office filed against them. The lawsuit alleges that the group lies to investors about its financial position, deliberately withholding the $1 billion deficit in Genesis’ balance sheet.

Three Arrows Collapse Led to $1 Billion Shortfall

The lawsuit, which also features crypto platform Gemini, accuses Genesis, DCG, Silbert, and Moro of misleading investors by concealing a $1 billion deficit in Genesis’ accounts. This gap was primarily caused by the collapse of the Singapore-based crypto hedge fund Three Arrows Capital (3AC), Genesis’ second-largest borrower at the time of its failure.

According to James’ suit filed in October, Genesis and DCG provided “false assurances” via Twitter, claiming that DCG had absorbed Genesis’ losses. These statements were intended to reassure investors and prevent them from withdrawing their funds. Instead of actually covering the losses, DCG issued a promissory note—a commitment to pay Genesis $1.1 billion over ten years at 1% interest—giving the illusion of liquidity without making any real payments.

The lawsuit asserts that DCG never fulfilled any payment obligations under this promissory note. In November 2022, Genesis halted withdrawals, leading to its bankruptcy declaration two months later. 

Groups Maintain Their Innocence

DCG and Silbert have firmly denied any wrongdoing, arguing that the promissory note was legitimate and thoroughly vetted. They claim that, alongside the note, DCG injected hundreds of millions of dollars and assets into Genesis to mitigate the financial shortfall. They further contend that the tweets declaring Genesis’ “strong” balance sheet were merely “corporate puffery” rather than deceitful statements.

In her latest motion, Attorney General James refutes this defense, stating that the tweets were not harmless exaggerations but deliberate “misrepresentations of existing facts” intended to “mislead the investing public.” She emphasizes that these actions constitute a breach of New York’s stringent anti-fraud law, the Martin Act.

This ongoing legal battle underscores the increasing scrutiny and regulatory challenges faced by the cryptocurrency industry as authorities seek to enforce transparency and protect investors from fraudulent activities.