The crypto winter has brought to light the vulnerabilities in the business models of many organizations within Web3. The collapse of the FTX Derivatives Exchange in November further exacerbated the existing financial irregularities within Genesis and DCG as a whole.
According to recent reports (1), law enforcement agencies in the United States (US), including the SEC and the Eastern District of New York (EDNY) of the DOJ, are investigating the troubled Digital Currency Group (DCG) and its nearly bankrupt subsidiary, Genesis.
Per the report, United States authorities have initiated an investigation into the corporations to investigate the movement of funds between both companies.
What is DCG?
The Digital Currency Group (DCG) is a crypto currency empire that counts as its subsidiary some of the most prominent enterprises operating in the ecosystem of digital currencies. In addition to Genesis, these affiliates include Grayscale Investments, a Bitcoin (BTC) mining company known as Foundry, a media platform known as Coindesk, and a cryptocurrency exchange known as Luno.
According to a report, which cites sources aware of the investigation, the investigators at the Department of Justice have already requested papers for review. They have given interview invites to parties that are of concern.
The SEC is conducting parallel investigations at the same time that the internal transactions are being investigated. Based on the information provided by the sources, neither the corporation nor its Chairman, Barry Silbert, has been implicated in any illegal activity.
The Digital Currency Group said in a statement that it is not presently aware of any investigation being conducted by either of the regulators. The statement was shared with Bloomberg.
"DCG has always operated its business following the law and has a culture that places a high value on honesty. According to the statement released by the corporation, "We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG."
In a separate statement, Genesis clarified that the company does not comment on pending legal processes.
In response to questions, Genesis stated that it "maintains a regular dialogue and cooperates with relevant regulators and authorities."
The crypto winter has brought to light the vulnerabilities in the business models of many organizations within Web3. The collapse of the FTX Derivatives Exchange in November further exacerbated the existing financial irregularities within Genesis and DCG as a whole.
Why the Dealings of DCG and Genesis Came Under Highlight?
Entities operating in the crypto currency market have complex commercial links like those operating in any other field. It's possible that one of these partnerships initially drew US authorities' attention to DCG and Genesis.
Silbert informed shareholders of the situation in a letter he wrote to them in November of the previous year, indicating that the company owes Genesis $575 million in overdue loans.
In addition, Silbert stated that it anticipated a deficit of $1.1 billion for Genesis, which was based on the fallout caused by the firm's exposures to the failed hedge fund known as Three Arrows Capital (3AC), which occurred in the previous year.
Gemini, an American crypto currency exchange, has leveled the accusation that Genesis cannot pay the $900 million promised to its Earn clients. As a result of this scenario, a public altercation has broken out between Silbert and Cameron Winklevoss, the CEO of the trading platform.
It is unknown whether this transaction is one of those that the SEC and the DOJ are investigating; however, similar investigations by the authorities can reveal other anomalies in the financial statements of the corporations currently in trouble.
Despite Silbert's assertion that the company "has never missed an interest rate payment to Genesis and is current on all loans outstanding," the question of whether or not DCG has sufficient liquid assets to fulfill its debt obligations remains a concern for the time being.
