Digital Currency Group (DCG) and its former Genesis CEO, Soichoro “Michael” Moro, have consented to pay a collective amount of $38.5 million to settle charges of securities fraud filed by the U.S. Securities and Exchange Commission (SEC). The lion’s share of this financial penalty, $30 million, will be borne by the cryptocurrency venture capital firm, DCG, and Moro will personally shoulder a $500,000 penalty. In addition to this, both parties have agreed to a cease-and-desist order, though neither has admitted any wrongdoing. Moro currently holds the position of the chief strategy officer at INX.
The SEC filed these charges in relation to DCG and Genesis’ handling of the demise of crypto hedge fund Three Arrows Capital (3AC), Genesis’ second-largest borrower, in 2022. The collapse of 3AC left a billion-dollar void on Genesis’ balance sheet.
DCG released a statement through a spokesperson saying, “Following a thorough investigative process, we are satisfied with the conclusion which was primarily focused on social media posts and communications from our former operating subsidiary, Genesis Global Capital. We are committed to operating with the utmost integrity, and we believe our actions concerning Genesis were in line with this commitment.”
Regulatory authorities, including New York Attorney General Letitia James, alleged that DGC and Genesis, a wholly-owned crypto trading subsidiary, conspired to conceal this massive deficit by falsely stating that DCG had absorbed Genesis’ losses. They claimed that DCG issued Genesis a promissory note, a form of IOU designed to give an illusion of liquidity, committing to pay Genesis $1.1 billion at 1% interest over a decade. DCG, however, has refuted the notion that the promissory note was a hoax.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of transparency from companies, especially during times of financial instability. He criticized DCG and Moro for failing to provide an accurate depiction of Genesis’s financial situation.
The SEC and the Department of Justice reportedly initiated an investigation into DCG in 2023. James’ civil case against DCG is still underway, with her seeking $3 billion in penalties.
