US authorities are investigating transfers between Digital Currency Group and Genesis
Digital Currency Group (DCG) is a venture capital firm that invests in and incubates companies in digital currency and blockchain technology. Genesis is a digital currency trading platform and liquidity provider owned and operated by Digital Currency Group. Genesis is a company that is part of the portfolio of companies invested in by DCG.
It is speculated that US authorities are investigating the internal financial operations of Barry Silbert’s massive crypto business. The investigation concerns transfers between Digital Currency Group Inc. and a subsidiary that provides crypto-financing services.
What caused the problems for Genesis?
Genesis, which brokers digital assets for financial institutions such as hedge funds and asset managers, had about $3 billion in total active loans at the end of the third quarter. However, following the extreme market turmoil that followed FTX’s bankruptcy filing, the crypto-lending business stopped making new loans and prevented customers from withdrawing money.
Its contagion concerns stem from its close association with troubled crypto firms. Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely linked to FTX, were Genesis’ two largest borrowers. Both are currently going through bankruptcy.
Genesis employed 260 members, but cut that down to 20% in Round I. In Round II, it was reduced by 30%, reducing the team’s size to 145.
According to additional sources, the layoffs were not limited to one area, but occurred throughout the company. It is also rumored that Genesis is working with the investment company Moelis & Co. to consider options going forward, including a potential Chapter 11 filing.
Crypto conglomerate DCG is under investigation
Transfers between Digital Currency Group and the conglomerate’s Genesis subsidiary are being investigated by officials from the US Securities and Exchange Commission and the Eastern District of New York (EDNY) of the US Department of Justice.
The Eastern District of the New York office of the DOJ has so far requested DCG and Genesis for interviews and documents, and the SEC’s investigation appears to be in a similarly early stage. Up until this point, neither Genesis nor DCG had “been accused of wrongdoing”.
According to the source, the inquiries appear to be particularly focused on the financial interaction between Genesis and DCG.
On Friday, a DCG representative told Bloomberg that the company was not aware of any EDNY inquiry, while a Genesis spokesperson told the news outlet that the company “maintains regular dialogue” with regulators but could not comment on specific topics.
The investigation is still in its early stages, and neither DCG nor Genesis have been charged with any crime. But could things make things worse for the already struggling Genesis?
