Key Points:

• The SEC has filed a lawsuit against Digital Currency Group for misleading investors about its exposure to the collapsed hedge fund Three Arrows Capital.
• DCG and former Genesis CEO Michael Moro settled charges related to Genesis’s bankruptcy, with Moro agreeing to pay $500,000.

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Digital Currency Group (DCG), accusing the company of misleading investors regarding its exposure to the collapsed hedge fund Three Arrows Capital (3AC).

Read more: Digital Currency Group Fully Repaid Its Short-term Debt as of June 2024 

SEC Sues Digital Currency Group Over Misleading Investor Claims

Digital Currency Group and former Genesis Global Capital CEO Michael Moro have agreed to pay $38 million and $500,000, respectively, to settle the charges without admitting or denying the findings.

The complaint from the SEC focuses on the bankruptcy of DCG’s subsidiary, Genesis Global Capital. According to the regulator, DCG did not disclose the extent of its financial condition after a margin call default by 3AC in June 2022.

That default triggered a nearly $1 billion loss for Genesis and called into question the financial health of the company. The SEC said DCG downplayed the impact of that loss and misrepresented the company’s efforts to stabilize Genesis.

Former Genesis CEO Fined $500,000 Over Misleading Statements

Moro stated publicly on X (formerly Twitter) that Genesis’ balance sheet remains strong, along with the other fact that its corporate parent has mitigated risk tied to 3AC’s default. According to the agency, these claims, which have further been echoed on social media platforms by executives with DCG, manipulated the market and kept investors in a blind spot on the true extent of Genesis’ problems.

Genesis suspended withdrawals in late 2022 and filed for bankruptcy in January 2023, revealing more than $10 billion in liabilities and over 100,000 creditors. Among the company’s top creditors were firms such as Gemini, VanEck, and Cumberland.

The SEC further claims that Digital Currency Group executives instructed employees to project confidence in Genesis’s financial health during the summer of 2022, even as the company was facing mounting financial pressures.