SEC Slaps DCG with $38 Million Fine for Investor Deception

January 18, 2025 by Bena Ilyas

• The SEC fined Digital Currency Group $38 million for misleading investors about Genesis Global Capital’s financial stability.

• DCG and GGC artificially inflated GGC’s balance sheet with a $1.1 billion promissory note.

• Genesis filed for bankruptcy in January 2023 with $10 billion in liabilities and over 100,000 creditors.

The United States Securities and Exchange Commission (SEC) has fined Digital Currency Group (DCG) $38 million for allegedly misleading investors about Genesis Global Capital’s (GGC) financial health. The SEC found DCG concealed GGC’s losses, offering investors a deceptive sense of security. The penalty also includes a cease-and-desist order.

On January 17, the SEC issued a cease-and-desist order to DCG alongside the fine to deter future misconduct. The charges also implicated DCG’s former CEO, Michael Moro, for downplaying the financial fallout from the collapse of Three Arrows Capital (3AC), a major borrower, in mid-2022.

3AC Collapse Sparks Crypto Liquidity Crisis

The SEC’s investigation uncovered that DCG and GGC colluded to create a $1.1 billion promissory note, artificially inflating GGC’s balance sheet. Investors remained unaware of this note in 2022, which violated federal regulations and further obscured DCG’s financial stability.

Three Arrows Capital’s downfall in 2022, caused by its heavy investments in the Terra Luna project, triggered a liquidity crisis. GGC had $2.4 billion in loans extended to 3AC, and its insolvency left GGC facing at least $1 billion in losses. DCG misrepresented these losses, misleading investors about its support for GGC.

“Digital Currency Group’s negligence created a materially false impression regarding GGC’s financial health,” the SEC filing stated. The domino effect of 3AC’s collapse was felt across the crypto industry, affecting Voyager Digital, BlockFi, and other firms with significant exposure.

FTX Collapse and DCG’s Financial Woes Impact Genesis

Former Genesis CEO Michael Moro settled the charges by agreeing to pay $500,000 in civil penalties. Genesis filed for bankruptcy in January 2023, disclosing $10 billion in liabilities and over 100,000 creditors, including Gemini and VanEck, who were owed a combined $3 billion.

Regulators have targeted DCG and its affiliates since 2023. New York’s Attorney General accused DCG, Genesis, and Gemini of defrauding 29,000 investors through Gemini’s Earn Program. Genesis settled with the SEC for $21 million in this lawsuit earlier.

Genesis’ financial troubles worsened after FTX’s collapse in 2022. DCG borrowed $500 million in 2022 but defaulted on $620 million by May 2023, forcing Genesis to sue for repayment. In November 2023, DCG agreed to repay the loans by April 2024, aiding Genesis’ bankruptcy resolution.

By February 2024, Genesis and Gemini reached a settlement to distribute $1.8 billion to Gemini Earn users, pending Court approval. By May 2024, Genesis distributed $2.18 billion worth of cryptocurrency to about 232,000 users, advancing its bankruptcy process.

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