The crypto winter has exposed the weakness of many companies’ business models on Web3, and the implosion of the FTX derivatives exchange in November further exacerbated financial inconsistencies in Genesis and DCG overall.
United States (US) authorities including the Securities and Exchange Commission (SEC) and the Eastern District of New York (EDNY) of the Department of Justice are reportedly investigating the embattled Digital Currency Group (DCG) and its nearly bankrupt subsidiary Genesis. According to a Bloomberg report, the US authorities launched investigations into the companies to check the money transfer between the two companies.
DCG is a crypto empire that has some of the largest companies in the digital currency ecosystem as its subsidiaries. In addition to Genesis, these subsidiaries include Grayscale Investments, mining company Bitcoin (BTC), Foundry, media company Coindesk, and crypto exchange Luno.
According to the Bloomberg report, DoJ regulators have already requested documents for review and sent out interview invitations to affected parties, citing sources familiar with the investigation. With the internal transactions to be examined, the SEC reportedly also conducts the same investigations. According to the sources, neither the company nor its chairman, Barry Silbert, have been accused of wrongdoing.
In a statement shared with Bloomberg, Digital Currency Group said it was not yet aware of any investigation from any regulator.
“DCG has a strong culture of integrity and has always conducted its business fairly. We have no knowledge or reason to believe there is an investigation into DCG in the Eastern District of New York,” the company said.
Genesis also said in a statement that it is not commenting on ongoing legal proceedings.
“Genesis maintains a regular dialogue and cooperates with the relevant regulators and authorities when requests are received,” it said.
The crypto winter has exposed the weakness of many companies’ business models on Web3, and the implosion of the FTX derivatives exchange in November further exacerbated financial inconsistencies in Genesis and DCG overall.
US authorities are investigating DCG: The Brawl With Gemini
Like any other industry, companies in the cryptocurrency industry have complicated business relationships, one of which may have particularly drawn US authorities to DCG and Genesis.
In a letter to shareholders last November, Silbert announced that Genesis owed $575 million in loans due. Additionally, Silbert said it assumed a $1.1 billion deficit for Genesis based on the impact of the company’s exposure to hedge fund Three Arrows Capital (3AC), which went bankrupt last year.
American crypto exchange Gemini has accused Genesis of failing to pay the $900 million it owes its Earn clients, a situation that has led to a public brawl between Silbert and the trading platform’s CEO, Cameron Winklevoss. It is unknown if this transaction is among those the SEC and DOJ are investigating, but similar investigations by regulators could uncover more inconsistencies in the financials of the embattled companies.
For now, concern is whether DCG still has enough cash to meet its debt obligations, though Silbert said the company “never missed an interest payment to Genesis and is up to date on all outstanding loans.”
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about the real-world applications of blockchain technology and innovations to drive mainstream adoption and global integration of the emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain-based media and websites. Benjamin Godfrey is a sports and farming enthusiast.
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