DCG, former Genesis CEO to pay $38.5 million to SEC to settle securities fraud charges

Digital Currency Group (DCG) and Soichiro “Michael” Morrow, the former CEO of its now-defunct Genesis subsidiary, have agreed to pay a combined civil fines of $38.5 million to Securities fraud charges settled With the US Securities and Exchange Commission (SEC).

The cryptocurrency venture capital firm will bear the brunt of the financial penalties, paying $30 million in fines, while Moro will personally be liable for a $500,000 fine. In addition to fines Both DCG And Moro He agreed to a cease and desist order. Neither DCG nor Moro admitted any wrongdoing. Morrow is currently the Chief Strategy Officer at INX.

These accusations stem from DCG and Genesis’ response to the collapse of cryptocurrency hedge fund Three Arrows Capital (3AC) — Genesis’ second-largest borrower — in the summer of 2022, which left a $1 billion hole in Genesis’ balance sheet.

“We are pleased to have concluded a wide-ranging investigation that was limited in its findings and focused on social media posts and communications made by our former operating subsidiary, Genesis Global Capital,” a DCG spokesperson told CoinDesk. “DCG has always sought to conduct its business with the highest degree of integrity, and we believe our actions regarding Genesis have been consistent with that approach.”

Regulators, including New York Attorney General (NYAG) Letitia James, have accused DGC and Genesis, its wholly-owned cryptocurrency trading firm, of working together to cover up the massive loophole by falsely claiming that DCG absorbed Genesis’ losses. What DCG allegedly did was issue Genesis a promissory note — essentially debt securities intended to create the appearance of liquidity — pledging to pay Genesis $1.1 billion over 10 years at 1% interest. DCG has denied that the promissory note was a hoax.

“It is important that companies and their officers speak honestly to the investing public, especially in times of financial instability or turmoil. The SEC found that DCG and Moro failed in this regard,” said Sanjay Wadhwa, acting director of the SEC’s Enforcement Division. Friday statement. “Instead of being transparent about Genesis’ financial position and DCG’s efforts to ensure Genesis’ continued operation, DCG and Morrow painted a misleadingly rosy picture.”

Reportedly, the Securities and Exchange Commission and the Department of Justice The DCG investigation began in 2023. James’ civil case against DCG is ongoing. she Demands $3 billion in sanctions.