SEC and DOJ Launch Investigation Into DCG Transfers

Officials with the US Securities and Exchange Commission and the US Department of Justice's Eastern District of New York (EDNY) are looking into transfers between Genesis and its parent company Digital Currency Group, CoinDesk wrote, citing Bloomberg.

Probe is in early stages

The authorities are in the early stages of inquiry. EDNY has asked for interviews and documents from Genesis and DCG. The report, which cited insiders, said that neither entity has "been accused of wrongdoing" so far.

The inquiries appear to be focused specifically on the financial interplay between DCG and Genesis. Last year, CoinDesk reported that Genesis Trading was experiencing huge losses from loans to Three Arrows Capital, which filed for bankruptcy eventually. Later, Genesis filed a claim for $1.2 billion, which was assumed by DCG.

The background

In November 2021, Genesis announced that Genesis Lending would suspend withdrawals, which impacted crypto exchanges like Gemini. Gemini’s product Earn, which provided yields of up to 8%, relied on Genesis. Co-founder of the exchange Cameron Winklevoss and DCG head Barry Silbert are in a high-profile dispute over issues arising from the suspension of withdrawals.

Genesis has dismissed 30% of staff since August last year. FTX’s collapse wreaked further havoc on Genesis's books. Genesis is looking into options, which might even include a Chapter 11 bankruptcy filing.

Grayscale also under siege

Grayscale, another DCG subsidiary, is struggling with its core Bitcoin trust product. The discount in the trust share price relative to the Bitcoin price passed 50% last month, showing a lack of ability on the part of investors to cash out or a lack of trust in the product.

Bloomberg cited a DCG spokesperson as saying the company was unaware of an investigation by authorities. A Genesis spokesperson told Bloomberg it "maintains regular dialogue" with watchdogs, but declined to comment on specific issues.