SEC Charges DCG and Genesis, Fines $38M for Misleading Investors

The U.S. Securities and Exchange Commission (SEC) announced enforcement actions against Digital Currency Group (DCG) and its subsidiary Genesis on Friday, citing violations of securities laws.

The SEC accused DCG and Genesis of defrauding investors through misrepresentation, resulting in penalties and legal action. DCG agreed to settle the charges by paying a $38 million fine.

The charges extend to DCG and its former CEO, Soichiro “Michael” Moro, who allegedly misled investors about the financial health of Genesis following the collapse of one of its largest borrowers, Three Arrows Capital (3AC), in mid-2022.

On January 17, the SEC ordered DCG to pay a $38 million civil penalty and issued a cease-and-desist order to prevent future misconduct.

SEC Reveals Accounting Tricks Behind DCG’s ‘Strong’ Balance Sheet Claims

As part of the enforcement action, Moro was fined $500,000 and barred from engaging in any negligent conduct that could mislead investors.

Additionally, Moro signed a $1.1 billion promissory note on behalf of Genesis, which the SEC described as perpetuating a false narrative about the company’s financial health.

According to the SEC, Moro authorized posts claiming that Genesis had “shed the risk” associated with 3AC’s default and maintained a “strong” balance sheet, despite the company’s precarious position.

In January 2023, Genesis filed for Chapter 11 bankruptcy, disclosing over $3.5 billion in debts to its top 50 creditors, including major names like Gemini and VanEck. Genesis’ parent company, DCG, borrowed $500 million across four loans in 2022. However, by May 2023, DCG had failed to repay $620 million, including 4,550 Bitcoin, prompting Genesis to file a lawsuit seeking full repayment plus fees.

The financial troubles of Genesis began with the collapse of 3AC, which triggered liquidity issues, and worsened with the implosion of FTX later that year.

Genesis and DCG Struggle with Fallout from 2022 Collapse