Digital Currency Group’s Transfers to Genesis Caused US Investigations: Report

Bloomberg reported that according to unnamed sources, federal prosecutors in Brooklyn, U.S. are investigating the internal financial dealings of Barry Silbert’s cryptocurrency company, Digital Currency Group, and its subsidiary that provides crypto lending services. 

The prosecutors are reportedly examining transfers between the two companies and what information was provided to investors about these transactions. Federal prosecutors from the Eastern District of New York office of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are reportedly conducting separate inquiries into Digital Currency Group (DCG) and its subsidiary, Genesis, which provides crypto lending services. 

The DOJ has requested interviews and documents from both companies, while the SEC is said to be in the early stages of its own investigation. It is not clear if either company has been accused of any wrongdoing. The focus of the inquiries appears to be on the financial relationship between Genesis and DCG.

In November, Genesis announced that it would suspend withdrawals from its lending unit, which had negative consequences for companies such as Gemini, which used Genesis for its Earn platform. This led to a public dispute between Gemini co-founder Cameron Winklevoss and DCG founder Barry Silbert.

Genesis has also undergone major layoffs and replaced its executive leadership, reducing its headcount by almost half since August. The subsequent collapse of crypto company FTX further impacted Genesis’s finances. The company has hired advisers to evaluate options, which could include a Chapter 11 bankruptcy filing.

As of early December, Genesis creditors had made claims totaling more than $1.8 billion. Another DCG subsidiary, Grayscale, is facing problems with its main bitcoin trust product, which saw its share price discount relative to the price of bitcoin exceed 50% last month, suggesting a lack of trust in the product or investors’ ability to cash out.

A DCG spokesperson stated that the company “has a strong culture of integrity and has always conducted its business lawfully” and has no knowledge of or reason to believe that there is any investigation by the Eastern District of New York into DCG. A Genesis spokesperson said that the company maintains regular communication with regulators but could not comment on specific issues.