The U.S. Securities and Exchange Commission (SEC) is imposing a multimillion-dollar fine on venture capital firm Digital Currency Group (DCG) and a former executive of Genesis, claiming they misled investors.
The regulatory agency states it is fining DCG and Soichiro “Michael” Moro – the former chief executive of crypto lending firm Genesis, a subsidiary of DCG – a total of $38.5 million for misleading investors regarding Genesis’ financial stability.
According to the SEC, DCG and Moro allegedly misrepresented the financial health of Genesis when one of their borrowers, Three Arrows Capital (3AC), defaulted on a substantial margin call in June 2022. The SEC claims that both Moro and DCG significantly downplayed the repercussions of the default, which resulted in approximately a $1 billion loss.
Additionally, Moro was found to have made false or misleading statements on his Twitter account, describing the firm’s balance sheet as strong and asserting that Genesis had “adequate capital to operate” after falsely claiming to have entered into a deal with DCG.
As stated by the regulatory body in its court filings:
“In mid-June 2022, a large borrower defaulted on a margin call, which compromised [Genesis’] 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 [Genesis] in the aftermath.”
Genesis subsequently halted customer withdrawals in November 2022 and filed for bankruptcy in January 2023.
As noted by Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, in the press release:
“It is vital that companies and their officers speak truthfully to the investing public, especially in times of financial instability or turmoil. The Commission found that DCG and Moro fell short in that regard.
Rather than being transparent about Genesis’s financial condition and DCG’s efforts to ensure Genesis’s continued operation, DCG and Moro painted a misleadingly rosy picture.”
While DCG and Moro have agreed to pay the fines, they did not admit to or deny any of the SEC’s findings.
