In a latest development, the SEC has filed a lawsuit against Digital Currency Group (DCG) for allegedly misleading investors by failing to disclose its exposure to the collapsed hedge fund Three Arrows Capital (3AC).
As per the lawsuit filing, DCG has already submitted an Offer of Settlement as part of the proceedings and has agreed to pay $38 million as part of a settlement in the lawsuit filed by the SEC.
“In mid-June 2022, a large borrower defaulted on a margin call, which compromised GGC’s business. 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,” the filing read.
DCG has settled the charges but did not admit or deny the allegations.
Notably, the SEC’s filing reveals that Three Arrows Capital, a major crypto hedge fund, owed $2.4 billion in loans to Genesis. Despite knowing Genesis would lose at least $1 billion due to Three Arrows’ collapse, DCG and Genesis continued to downplay the financial threat, misleading investors about the situation.
The SEC alleged in its complaint that DCG executives instructed employees and its subsidiary Genesis to publicly downplay financial issues and present a strong image of the lending firm’s condition in summer 2022.
Genesis falsely claimed its balance sheet was strong, despite facing over $1 billion in losses from Three Arrows Capital’s collapse. Additionally, Genesis’ former CEO falsely stated that the firm had “shed the risk” of Three Arrows’ default. The SEC claims DCG failed to take appropriate action to prevent these misleading statements.
The SEC’s penalty on DCG has sparked debate, with some critics saying it’s more of a reaction than a solution. Also, the SEC’s action against DCG highlights the growing focus on ensuring transparency and accountability in the cryptocurrency industry. While the regulatory landscape for digital assets is complex, this move shows a commitment to addressing potential risks and protecting investors.
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