The US Securities and Exchange Commission (SEC) has started legal action against Digital Currency Group (DCG) and its affiliate Genesis, accusing them of deceiving investors and breaching securities laws.
The regulator ordered DCG to pay a $38 million civil penalty to prevent future violations and issued a cease-and-desist order. The allegations focus on former Genesis CEO Soichiro “Michael.” They accuse him of using dishonest methods to present the cryptocurrency company’s financial viability.
Allegations of Investor Deception
Additionally, the SEC examines whether DCG’s misleading financial disclosures and actions following the 2022 collapse of Three Arrows Capital (3AC), one of Genesis’ largest borrowers. Genesis took the money and ran major losses, defaulting on a $2.4 billion loan.
DCG executives knowingly ran up a $1 billion shortfall even as they struggled to maintain a facade of financial stability. Characterized as “strong” in Genesis’ balance sheet and pushed the risks of 3AC’s default, this effort included public statements and tweets.
The SEC’s case involves a $1.1 billion promissory note issued by DCG to Genesis. The SEC alleges that Genesis created an accounting asset but no real transfer of capital. Additionally, investors were kept uninformed about the terms of the note. By completing this maneuver, Genesis could testify to positive equity on June 30, 2022. However, little financial stability followed. In November 2022, Genesis suspended customer withdrawals, citing liquidity problems.
In January 2023, crypto firm Genesis declared bankruptcy, leaving retail customers and investors with significant losses. The SEC claims that the company’s earlier behavior, including deceptive disclosures, contributed to the scale of the fallout. As with any other industry that has undergone such rapid growth, the cryptocurrency industry remains in the hot seat of the SEC’s focus, and the regulator continues to call for transparency and accountability to protect investors enthusiastically.
SEC Imposes Sanctions on Former Genesis CEO Michael Moro
The US Securities and Exchange Commission (SEC) has sanctioned Genesis’ former CEO, Soichiro “Michael” Moro. The sanctions cite him for deceitful public communications during the company’s financial turmoil.
According to the SEC’s filing, Moro approved public statements and tweets that downplayed the company’s difficulties when the crypto hedge fund Three Arrows Capital (3AC) defaulted. In particular, Moro is charged with supporting Genesis’ claims that it had ‘shed the risk’ of 3AC’s default and ‘cashed out’ and that its balance sheet was strong even with huge amounts of undisclosed financial exposure.
More fallout for the company comes as the regulator says these statements were made to misrepresent the severity of the company’s financial situation.
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