The Securities and Exchange Commission (SEC), alongside New York-based federal prosecutors, is probing Digital Currency Group (DCG) for alleged internal transfers at Genesis, the firm’s crypto lending subsidiary. Bloomberg revealed the developments on Sunday.
According to Bloomberg’s unnamed source, DCG received requests for interviews and documents from federal prosecutors in New York. Also, SEC had plans to start separate investigations into the financially struggling crypto firm.
As of now, the investigations have yet to be made public by the two government authorities. Furthermore, the agencies have not accused DCG or its CEO Barry Silbert of criminal conduct. Meanwhile, a DCG spokesperson denied the existence of any investigation into the firm.
DCG Spokesperson Refutes Claims That Firm is Under Investigations
In a statement, the spokesperson cited that DCG had no reason to believe that the firm is subject to investigation, claiming that it has always had a strong culture of integrity and carried out its business within stipulated laws.
Claims that Genesis and its parent firm were under investigation began making rounds on the internet on Wednesday last week. A Twitter user and crypto analyst (@AP_Abacus) claimed that he was informed by a DCG whistleblower cooperating with the SEC about the investigation.
Bloomberg Reports Investigations Began Before FTX Collapse
According to Bloomberg, the federal prosecutors launched criminal investigations into DCG and its crypto lending division before the collapse of FTX last November. In addition, Bloomberg reports that by the time FTX had fallen, Genesis had been massively affected by the implosion of Three Arrows Capital.
Three Arrow Capital was a crypto hedge fund liquidated in late June 2022. The hedge fund’s liquidation documents revealed that it had received a loan worth $2.3 billion from Genesis brokerage unit, Genesis Global Trading.
Genesis filed a $1.2 billion claim against Three Arrows Capital, which DCG assumed. According to Bloomberg, the move gave rise to an over $1 billion promissory note due to DCG this year. Also, in November 2022, news that DCG had borrowed a loan from its crypto lending arm became public.
Genesis Fires Staff to Keep Business Going
The DCG’s $570 million loan from Genesis is due in May 2023. Meanwhile, Genesis has had to lay off 30% of its workforce. According to Derar Islim, the Genesis interim CEO, the move would help the crypto lender avoid further financial troubles and focus on keeping their business afloat.
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