Digital Currency Group (DCG) and Soichoro “Michael” Moro, the former CEO of its now-defunct Genesis subsidiary, have agreed to pay a combined $38.5 million in civil penalties to settle securities fraud charges brought by the U.S. Securities and Exchange Commission (SEC).
In this settlement, the crypto venture capital firm will shoulder the majority of the financial penalty, contributing $30 million in fines, while Moro will be liable for a personal penalty of $500,000. As part of the agreement, both DCG and Moro have also consented to a cease-and-desist order. Importantly, neither DCG nor Moro admitted to any wrongdoing in this matter. Moro is currently serving as the chief strategy officer at INX.
The charges against DCG and Genesis arose from their actions related to the collapse of crypto hedge fund Three Arrows Capital (3AC), which was Genesis’ second-largest borrower, during the summer of 2022. This collapse resulted in a significant gap in Genesis’ financial structure, with reported losses in the billion-dollar range.
In a statement provided to CoinDesk, a spokesperson for DCG expressed satisfaction in reaching a conclusion to the extensive investigation, highlighting that the findings were limited and concentrated on social media activities and communications from the former operating subsidiary. They asserted, “DCG has always strived to conduct its business with the highest integrity, and we believe our actions related to Genesis were consistent with that approach.”
However, the investigation led by regulators, including New York Attorney General Letitia James, alleged that DCG and Genesis colluded to obscure the true magnitude of the losses by incorrectly indicating that DCG had absorbed Genesis’ financial deficiencies. The alleged mechanism for this misrepresentation involved the issuance of a promissory note from DCG to Genesis, effectively an IOU that was intended to create an illusion of liquidity. This note committed DCG to pay Genesis $1.1 billion over a decade at a minimal interest rate of 1%. DCG has denied any claims that the promissory note was a merely deceptive artifact.
“It is vital that companies and their officers speak truthfully to the investing public, especially during periods of financial instability or turmoil. The Commission found that DCG and Moro fell short in that regard,” remarked Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, in a Friday statement. He emphasized that instead of maintaining transparency regarding Genesis’s financial status and DCG’s efforts to support the subsidiary, the narrative portrayed by DCG and Moro was misleadingly optimistic.
The SEC, along with the Department of Justice, reportedly initiated an investigation into DCG in 2023. Concurrently, James’ civil case against DCG is still in progress as she seeks $3 billion in penalties for the alleged misconduct.
