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U.S. Authorities Investigate Transfers Between Digital Currency Group and Genesis

Author: Sohrab Khawas

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    Digital Currency Group (DCG) is a venture capital firm that invests in and incubates companies in the digital currency and blockchain technology space. Genesis is a digital currency trading platform and liquidity provider that is owned and operated by Digital Currency Group. Genesis is a company that is part of the portfolio of companies that are invested in by DCG.

    It is speculated that the US authorities are inquiring into the internal financial operations of Barry Silbert’s vast crypto enterprise. The investigation is regarding the transfers between Digital Currency Group Inc. and a subsidiary that provides crypto financing services. 

    What caused the issues for Genesis? 

    Genesis, which brokers digital assets for financial institutions such as hedge funds and asset managers, had about $3 billion in total active loans at the end of the third quarter. However, following the extreme market turmoil that followed after FTX declared bankruptcy, its crypto lending business ceased making new loans and restricted customers from withdrawing funds.

    Its contagion concerns stem from its close affiliation with troubled crypto firms. Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely associated with FTX, were Genesis’ two biggest borrowers. Both are currently going through bankruptcy.

    Genesis employed 260 members but cut it down to 20% in the round I. Round II saw a 30% cut, reducing the team’s size to 145.

    https://twitter.com/mirtowsif7/status/1611242253573591044?s=20&t=ldqntBitrb86B-p3oinRTQ

    According to additional sources, the layoffs were not limited to one area but occurred throughout the company. It is also rumored that Genesis is working with investment firm Moelis & Co. to assess its alternatives moving forward, including a potential chapter 11 filing.

    Crypto Conglomerate DCG Being Investigated

    Transfers between Digital Currency Group and the conglomerate’s Genesis subsidiary are being investigated by officials of the U.S. Securities and Exchange Commission and the Eastern District of New York (EDNY) of the U.S. Department of Justice.

    The Eastern District of New York office of the DOJ has so far asked DCG and Genesis for interviews and documents, and the SEC’s investigation looks to be in a similarly early stage. Up until this point, neither Genesis nor DCG had “been accused of wrongdoing.”

    According to the source, the inquiries appear to be particularly focused on the financial interactions between Genesis and DCG. 

    On Friday, a DCG representative told Bloomberg that the company was not aware of any EDNY inquiry, while a Genesis spokesperson told the news outlet that the company “maintains regular dialogue” with regulators but couldn’t comment on particular topics.

    The investigation is still in its nascent stages and neither DCG, nor Genesis is being accused of any crime. However, could things make things worse for the already struggling Genesis? 

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