Digital Currency Group settles with the SEC for $38 million over misleading statements surrounding Genesis collapse
The Digital Currency Group has agreed to settle with the SEC for $38 million over charges that its Genesis subsidiary misled investors. When the hedge fund Three Arrows Capital blew up and defaulted on a margin call in June 2022, DCG publicly downplayed the fact that their entire business was at risk, and overstated its ability to bail out the Genesis subsidiary by taking on its liabilities and doing some weird accounting maneuvering involving a $1.1 billion promissory note. In November, with further crypto market turmoil, Genesis could no longer meet withdrawal requests and collapsed. The company filed for bankruptcy the following January.
- Order from the SEC
Genesis to settle with New York for $8 million
After the New York Department of Financial Services accused the Genesis cryptocurrency platform of cybersecurity failures that made it vulnerable to criminal activity and hacking threats, Genesis has reached an $8 million settlement with the agency.
The failures included poor anti-money laundering programs, deficiencies around filing suspicious activity reports, and poor cybersecurity.
The NYDFS action is only one of Genesis' many worries these days, as it undergoes bankruptcy proceedings and is facing various other legal woes.
Gemini, Genesis, and DCG sued over $1 billion alleged fraud
The New York Attorney General filed suit against Gemini, Genesis, and Digital Currency Group (DCG), a group of companies that have been involved in a bitter feud amongst themselves. As Genesis undergoes bankrutpcy proceedings, Gemini and its Winklevoss twin cofounders have been firing accusations of fraud at them as they try to recover around $900 million of their customer funds that were with Genesis when it collapsed.
Now, the New York Attorney General is alleging that Gemini repeatedly lied to investors about its Gemini Earn program, assuring them that it was low-risk when internal analysis had revealed Genesis' loans to in fact be quite risky. Some personnel involved in evaluating this risk even withdrew their own funds from the program in the summer of 2022.
Genesis, DCG, and DCG CEO Barry Silbert are charged with defrauding both investors and the public when they tried to cover up $1.1 billion in losses. The lawsuit alleges that Genesis had not properly audited its borrowers, and lied to Gemini about regular reviews of borrowers' financial conditions.
In a press release, the AG claims that the companies' actions resulted in around $1 billion in losses, including in some cases their customers' entire life savings.
- "Attorney General James Sues Cryptocurrency Companies Gemini, Genesis, and DCG for Defrauding Investors", press release from the Office of the New York State Attorney General [archive]
Genesis closes trading entirely
After announcing on September 5 that Genesis would be closing their U.S. spot trading business in a "decision ... made voluntarily and for business reasons", Genesis has now announced that they will be closing all trading. They again write that "This decision was made voluntarily and for business reasons" - the kind of statement that gets less believable the more they repeat it.
Although Genesis Global Capital filed for bankruptcy in January 2023, portions of its business were excluded from the bankruptcy and continued to operate.
Genesis to close U.S. spot trading business
Although Genesis Global Capital filed for bankruptcy in January 2023, portions of the larger business were not included in bankruptcy proceedings and continued to operate. One such portion was Genesis's U.S.-focused spot trading platform, at least until an email to clients announcing that their accounts would be closed at the end of the month.
"The decision was made voluntarily and for business reasons," the email claimed.
Genesis is a subsidiary of the Digital Currency Group (DCG) conglomerate, which has since the beginning of the year seen its Genesis platform enter bankruptcy, shuttered its TradeBlock subsidiary, and is reportedly approaching a deal to sell its CoinDesk crypto media outlet.
Texas securities regulator alleges in cease-and-desist that Abra crypto lender has been insolvent for months
In an emergency cease-and-desist issued on June 15, the Texas State Securities Board alleged that the Abra crypto lending firm was "insolvent or nearly insolvent" as of interviews conducted on March 31. The filing alleged that Abra and its founder William Barhydt had made investment offerings that were materially misleading, accusing them of securities fraud. Despite not contesting securities regulators' conclusion that Abra was insolvent, Abra repeatedly posted statements on social media such as the one on June 11, where they wrote "Abra is not bankrupt".
According to the complaint, although Abra claimed it stored customer funds with the Fireblocks crypto custodian, they had actually been "secretly transferring assets" to Binance.
The regulator also alleged that Abra had around $30 million in assets with Babel Finance, $30 million with Genesis, and $10 million with Three Arrows Capital — three companies in various stages of liquidation or bankruptcy. They also have $8.8 million with Auros, a firm that was in liquidation but has since exited the process.
Coin Cloud crypto ATM operator files for bankruptcy
The US-based company Coin Cloud, which operates crypto ATMs in the US and Brazil, filed for bankruptcy on February 7. They are the second largest crypto ATM operator in the world, and also in the US.
The company disclosed liabilities between $100 million and $500 million, and assets between $50 million and $100 million. In a filing, they reported they had 5,001–10,000 creditors.
By far the largest creditor is Genesis, a crypto lending firm that is also undergoing bankruptcy proceedings. Coin Cloud has a $116 million loan from Genesis, around $108 million of which is unsecured. Coin Cloud also owes a $7.6 million secured debt to crypto lending firm Enigma.
According to Coin Cloud, contributing to their bankruptcy was a $35 million deal with a vendor who they allege sold them faulty ATMs in February 2021, and with whom they are in litigation. Furthermore, in September 2021, the firm providing Coin Cloud's ATM software tried to terminate their software agreement, and pushed a software update that rendered the machines inoperable, causing days- or weeks-long outages. Coin Cloud decided to deploy unfinished ATM software that they had been using internally, and which was quickly hacked for around $6.5 million. Finally, Coin Cloud claims a chief marketing officer they hired lied about his credentials, and then spent $20 million more than he was budgeted.
Genesis files for bankruptcy
The Genesis cryptocurrency lending platform filed for bankruptcy, following weeks of turmoil after the FTX collapse. Genesis halted withdrawals shortly after FTX's failure, and shortly afterwards warned of possible bankruptcy if they couldn't raise at least $1 billion in new capital. The past few months have also featured a public conflict between Genesis, along with its parent company DCG and DCG's CEO and founder Barry Silbert, and the Winklevoss twins behind the Gemini crypto exchange.
It remains to be seen what the impact of a Genesis bankruptcy may have on its parent company, Digital Currency Group (DCG). DCG owes Genesis more than $1.65 billion, according to bankruptcy filings, including a $1.1 billion promissory note created to absorb Genesis losses in the Three Arrows Capital collapse.
- "Genesis, a Crypto Lending Firm, Files for Bankruptcy", The New York Times
SEC charges Gemini and Genesis for allegedly offering unregistered securities
The SEC filed charges against Genesis Global Capital and Gemini, two crypto firms that collaborated to create Gemini's embattled Earn lending program. According to the SEC, their lending program constitutes an offer and sale of securities and, as such, should have been registered. Other companies, such as (now bankrupt) Celsius, have in the past shut down similar products in the US due to concerns over regulatory action; it's not clear why Gemini thought their product would pass muster.
On November 16, Gemini halted withdrawals from Earn after Genesis halted withdrawals after FTX collapsed. Since then, Gemini and Genesis have been engaged in a very public battle, with Gemini's founders accusing Genesis and its parent company of misconduct and demanding the return of the $900 million in Gemini customer funds.
- "SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities through the Gemini Earn Lending Program", U.S. Securities and Exchange Commission
Genesis lays off another 30% of staff
After a round of layoffs in August that impacted 20% of their employees, Genesis is laying off another 30% of their employees.
Genesis is currently in a really bad spot, halting withdrawals from their lending arm in the wake of the FTX collapse and warning of bankruptcy shortly afterwards. The company owes $900 million to customers of Gemini, and Gemini's CEO recently sent an open letter to Genesis's parent company demanding the funds be returned.