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 deliberately misleading investors about the health of the failed division. DCG settled these charges today, without admitting or denying the allegations.

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

The “big borrower” in question is Three Arrows Capital, the once-prominent crypto hedge fund that flared up in 2022 amid the collapse of Terra’s crypto ecosystem. According to the SEC filing, bankrupt Three Arrows Capital had $2.4 billion in outstanding loans from Genesis, and DCG knew Genesis would lose at least $1 billion from the fund’s collapse. Still, the SEC said Genesis and DCG continued to pretend their businesses were not threatened by the measures, even though that was not true.

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

As a result, Genesis posted on X (formerly Twitter) a “materially false or misleading” statement about the company’s strong balance sheet, the SEC said. That’s despite Genesis standing to suffer at least $1 billion in losses following the collapse of borrower Three Arrows Capital. Similarly, then-Genesis CEO Soichiro “Michael” Moro tweeted that his company had “lost the risk” associated with Three Arrow Capital’s default on its $2.4 billion loan – a claim that the SEC also found to be “false.”

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 case.

Editor’s note: This story was updated with additional details after publication.

Edited by Andrew Hayward