The Securities and Exchange Commission (SEC) has announced a settlement with Digital Currency Group Inc. (DCG) and former CEO of its subsidiary Genesis Global Capital LLC, Soichoro “Michael” Moro, for misleading investors about the financial condition of Genesis. The companies have agreed to pay a combined $38.5 million in civil penalties to resolve the charges.
Digital Currency Group Financial Services, known for building and supporting bitcoin and blockchain enterprises by utilizing our expertise, extensive network, and financial resources. Genesis Global Holdco LLC, the parent company of the struggling cryptocurrency lender Genesis Global Capital, sought Chapter 11 bankruptcy protection in New York, following the fallout from two major industry failures in 2022.
Genesis Global Holdco, LLC, along with its subsidiaries Genesis Asia Pacific Pte. Ltd and Genesis Global Capital, LLC, submitted three voluntary petitions to the U.S. Bankruptcy Court for the Southern District of New York. All entities are part of Digital Currency Group, which also owns CoinDesk.
In a 2024 press release, Gemini announced that it has recovered over $2.18 billion in digital assets for users of its Earn program, achieving a remarkable 97% recovery rate following the Genesis bankruptcy. The company highlighted that this represents an impressive 232% recovery since Genesis suspended withdrawals. Additionally, Gemini revealed that it has allegedly invested $50 million to support this recovery effort, ensuring that Earn users will receive back 100% of their digital assets, along with any gains accrued while the assets were lent out. Furthermore, Gemini emphasized that the Genesis bankruptcy stemmed from financial fraud rather than issues specific to the cryptocurrency sector.
“When investors suffer losses because of fraud and manipulation, they deserve to be made whole,” said Attorney General James. “This historic settlement is a major step toward ensuring the victims who invested in Genesis have a semblance of justice. Once again, we see the real-world consequences and detrimental losses that can happen because of a lack of oversight and regulation within the cryptocurrency industry. New York investors deserve the peace of mind that comes from a properly regulated marketplace, and that is something my office will always act to achieve.”
The SEC’s investigation revealed that in June 2022, Genesis suffered a significant financial blow when one of its largest borrowers, crypto asset hedge fund Three Arrows Capital, defaulted on a $1 billion margin call. Despite this, DCG and Moro downplayed the impact of the loss and misled the public about Genesis’s financial health. Specifically, Moro made false statements on social media, including claims that Genesis’s balance sheet remained strong and that the company had mitigated the risks arising from the default. These misleading statements were further echoed by other DCG executives.
Moreover, the SEC found that, despite entering into a promissory note agreement to help stabilize Genesis, DCG did not provide any actual capital to the company. Moro, however, falsely claimed on Twitter that DCG had ensured Genesis had “adequate capital to operate.”
Cameron and Tyler Winklevoss co-founded the cryptocurrency exchange Gemini in 2014, which became one of the first regulated platforms by the New York State Department of Financial Services (NYSDFS). In 2021, Gemini launched its Earn program in partnership with Digital Currency Group’s Genesis Global Trading, allowing users to earn interest on their crypto holdings.
However, in November 2022, Genesis halted withdrawals after the FTX collapse, leaving Gemini Earn investors owed approximately $900 million. Following this, Gemini ended its partnership with Genesis and the Earn program. The SEC charged both companies for offering unregistered securities through the Earn program. Additionally, the Winklevoss brothers publicly admitted on Twitter that they donated over $2 million to the Trump campaign in 2022, citing Trump’s support for Bitcoin.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of transparency, particularly in times of financial instability. “It is vital that companies and their officers speak truthfully to the investing public,” Wadhwa said. “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.”
Although DCG and Moro did not admit or deny the SEC’s findings, both parties have agreed to a cease-and-desist order. DCG will pay a $38 million penalty, while Moro will pay $500,000.
