Federal prosecutors in New York, along with the SEC, are investigating Digital Currency Group (DCG) for internal transfers at its lending subsidiary Genesis, Bloomberg reported on Friday.
DCG has received requests for documents and interviews by prosecutors in the Eastern District of New York, the report states, citing people familiar with the investigation. The SEC is also separately investigating DCG, according to an unnamed source who spoke with Bloomberg.
The investigations have not yet been made public by authorities and are just beginning to take shape. Neither DCG nor the company’s Chief Executive Barry Silbert has been accused of any criminal conduct by authorities.
“DCG has a strong culture of integrity and has always conducted its business lawfully,” a company spokesperson told Decrypt. “We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.”
A spokesperson for Genesis would not confirm the existence of any investigation, telling Decrypt that it does not comment on specific legal or regulatory cases.
“Genesis maintains regular dialogue and cooperates with relevant regulators and authorities when it receives inquiries,” it said.
Claims that DCG and Genesis were under investigation by the SEC began to crop up on Twitter as early as this past Wednesday.
UPDATE: DCG/Genesis is under active investigation by the SEC.
**sources confirmed that there are multiple whistleblowers that have come forward.
— Andrew (@AP_Abacus) January 4, 2023
Crypto Twitter commentator @AP_Abacus tells Decrypt that he was tipped off days earlier by “a DCG whistleblower working directly with the SEC.”
The criminal investigation by federal prosecutors into DCG began prior to the sudden collapse of cryptocurrency exchange FTX in November, according to Bloomberg. Shortly after FTX plunged into bankruptcy, Genesis paused withdrawals from its lending platform, citing “unprecedented market turmoil.”
Aside from Genesis, DCG is the parent company of crypto news site CoinDesk, cryptocurrency exchange Luno, and crypto-mining service provider Foundry Digital.
By the time FTX had gone under, Genesis had already been burned by the implosion of crypto hedge fund Three Arrows Capital (3AC). Documents from the hedge fund’s liquidation in July revealed 3AC had received a $2.36 billion loan from Genesis Global Trading, the brokerage unit of Genesis.
Genesis Global Trading filed a claim against 3AC for $1.2 billion, which was assumed by its parent company, according to CoinDesk. The move resulted in a $1.1 billion promissory note due to DCG in 2023, Bloomberg reported.
In November, it was revealed that DCG had also borrowed money from Genesis. DCG currently has $575 million worth of intercompany loans which are due to Genesis in May.
Recently, Genesis has been under fire from cryptocurrency exchange Gemini. The crypto lender owes $900 million to Gemini Earn, a high-yield lending product that’s native to the Winklevoss twins’ exchange.
Gemini co-founder Cameron Winklevoss recently accused Silbert of “bad faith stall tactics” as the exchange works to get its money back.
In a subsequent update to clients, Genesis interim CEO Derar Islim said Genesis is “focused on finding a solution for our borrowing and lending intermediation business.”
This past Thursday, Genesis had to let go of 30% of its staff. “These measures are part of our ongoing efforts to move our business forward,” a company spokesperson told Decrypt via email.