The United States Securities and Exchange Commission (SEC) has filed charges against Digital Currency Group (DCG) and former Genesis CEO Soichoro Michael Moro for allegedly misleading investors about its financial health and the stability of its subsidiaries.
According to a recent filing, DCG and Moro have consented to pay a total of $38.5 million in civil penalties, with DCG responsible for $38 million and Moro for $500,000. Both parties agreed to the penalties without admitting or denying any violations of the Securities Act of 1933.
SEC Charges DCG
The agency claims that DCG misled both institutional and retail investors by providing false and incomplete disclosures regarding its operations, financial condition, and risk exposure, particularly after the collapse of its high-profile subsidiary, Genesis Global Capital.
The settlement marks the latest development in the ongoing legal case involving Genesis, which sought Chapter 11 bankruptcy protection in January 2023 following a 2022 default by Three Arrows Capital, a former borrower of the firm.
The regulator claims that DCG downplayed the severity of the subsidiary’s insolvency issues and overstated its liquidity position, thus leading investors to believe the company was in a stronger position than it was.
The securities watchdog’s action against DCG marks the latest in a series of regulatory moves aimed at tightening oversight in the crypto sector, which has faced heightened scrutiny over the past few years. The U.S. SEC has increasingly focused on crypto companies accused of misleading investors and firms whose operations expose investors to significant risk without proper disclosure.
The Downfall of 3AC And Its Effect on Genesis
The collapse of Three Arrows Capital (3AC) also profoundly impacted the crypto industry, disrupting all firms with exposure to the now-bankrupt hedge fund. Prior to the collapse of the Terra ecosystem in May 2022, 3AC acquired around 10.9 million locked LUNA tokens for an estimated $570 million.
The $570 million investment dropped by more than 99%, leaving it valued at just $670 in June 2024 — a significant blow to any company’s financial health and its capacity to repay loans. By June 16, 2022, 3AC had failed to meet margin calls from lenders and was compelled to liquidate some of its positions to settle its debts.
A few days later, on June 27, the court in the British Virgin Islands directed 3AC to liquidate its assets. This ruling was issued on the same day that the former brokerage firm Voyager Digital filed a notice of default against 3AC for not repaying a loan of 15,250 bitcoins.
