Digital Currency Group Agrees to Settle SEC Charges for $38 Million

Digital Currency Group will pay $38 million to settle SEC charges filed over the crypto firm’s bankrupt Genesis Global Capital lending unit. The securities regulator had accused the company of negligence and misleading investors over the health of the failed division. DCG today settled those charges while neither admitting nor denying the allegations.

“In mid-June 2022, a large borrower defaulted on a margin call, which compromised GGC’s business,” Friday’s SEC filing reads. “Yet, Digital Currency Group negligently engaged in conduct that misleadingly downplayed the impact of that default and overstated what Digital Currency Group did to help GGC in the aftermath. In short, Digital Currency Group’s failure to exercise reasonable care created a materially false impression to the public regarding GGC’s financial health.”

The “large borrower” in question is Three Arrows Capital, the once-prominent crypto hedge fund that flamed out in 2022 amid the collapse of Terra’s crypto ecosystem. Per the SEC filing, the bankrupt Three Arrows Capital had $2.4 billion worth of outstanding loans from Genesis, and DCG knew that Genesis was set to lose at least $1 billion from the fund’s collapse. Still, the SEC said that Genesis and DCG continued to act like its business was not threatened by the moves, despite that not being true.

DCG executives ordered their employees and those of the company’s subsidiary Genesis Global Capital to publicly “project strength” about the lending firm’s financial condition in summer 2022, the SEC alleged in its complaint.

As a result, Genesis posted on X (formerly Twitter) a “materially false or misleading” statement about its balance sheet being strong, the SEC said. That’s despite the fact Genesis was poised to sustain at least $1 billion in losses due to its borrower Three Arrows Capital’s collapse. Similarly, Genesis’s then-CEO Soichiro “Michael” Moro tweeted that his firm had “shed the risk” associated with Three Arrow Capital’s default on its $2.4 billion loan—a claim that was also “false,” according to the SEC.

Digital Currency Group reviewed the tweets but “failed to exercise reasonable care in connection with their publication,” federal regulators added.

Moro will also pay a $500,000 settlement, per a separate SEC filing, for his role in the matter.

“We are pleased to have concluded an extensive investigation process that was limited in its findings and focused on the social media posts and communications made by our former operating subsidiary, Genesis Global Capital,” a DCG spokesperson told Decrypt. “DCG has always strived to conduct its business with the highest integrity, and we believe our actions related to Genesis were consistent with that approach. This settlement allows us to focus on our growth initiatives and continue to embrace the positive momentum in the industry.”

Editor’s note: This story was updated after publication with additional detail and a comment from DCG.

Edited by Andrew Hayward