Digital Currency Group, Genesis transactions under Justice and SEC investigation

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(Kitco News) –
After a tumultuous week of allegations, ultimatums and price moves, the week ended on a dramatic note for Genesis and Digital Currency Group (DCG) after Bloomberg reported that multiple U.S. authorities are investigating Barry Silbert’s crypto empire.

According to the report, Federal prosecutors from the Eastern District of New York (EDNY) are investigating transfers of funds between DCG and Genesis, their crypto lending business, and they are also looking into what the companies told investors about the transactions. As part of their inquiry, prosecutors have requested documents and interviews with the parties involved.

The report said that the Securities and Exchange Commission (SEC) is also investigating the relationship between the two entities.

The sources cited in the report said the investigations are in their early phases and have not been made public, and that Silbert, Digital Currency Group, and Genesis have yet to be accused of wrongdoing.

A spokesperson for DCG responded to the report in a statement, saying “DCG has a strong culture of integrity and has always conducted its business lawfully. We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.”

Genesis wrote in a statement that they do not comment on specific legal or regulatory matters, adding that “Genesis maintains regular dialogue and cooperates with relevant regulators and authorities when it receives inquiries.”

On Jan. 5, DCG announced that its HQ wealth management division would be shutting down, while Genesis announced that it would be laying off an additional 30% of their staff.

According to an internal memo, DCG made the decision to close their HQ wealth management business in the new year, which operated for only one year and had $3.5 billion in assets under management.

“Due the state of the broader economic environment and prolonged crypto winter presenting significant headwinds to the industry, we made the decision to wind down HQ, effective January 31,” a spokesperson for DCG wrote in an emailed statement on Thursday. “We’re proud of the work that the team has done and look forward to potentially revisiting the project in the future.”

According to the DCG website, HQ was “the life and wealth management membership platform for digital asset entrepreneurs and investors.”

Also on Jan. 5, DCG’s crypto lending platform Genesis announced an additional 60 layoffs representing 30% of their remaining staff. This is the second round of employee reductions at Genesis in six months after the company cut its workforce by 20% in August.

In an update to its clients on Jan. 4, Genesis interim CEO Derar Islim said they “remain focused on finding a solution for our borrowing and lending intermediation business,” and that a part of that process included “reducing costs and driving efficiencies” across all their business activities.

DCG and Genesis came under increasing pressure last week after Gemini co-founder Cameron Winklevoss published an open letter to DCG founder Barry Silbert on Jan. 2.

Winklevoss wrote that DCG owes its own subsidiary Genesis Trading $1.675 billion, which includes money that belongs to Gemini and other creditors, and demanded that Silbert to “publicly commit” to a resolution timeline by Jan. 8, 2023, prompting Silbert to tweet a response challenging the specifics of the letter.

The public argument drew the attention of Zhu Su, co-founder of Three Arrows Capital (3AC), who leveled his own accusations at Silbert and DCG.

“dcg value is 0, criminal fraud,” Zhu wrote. “Genesis creditors will push it into bankruptcy and take remaining dcg assets in coming days.”