Digital Currency Group (DCG) is now under scrutiny for its financial transactions involving its subsidiary, Genesis Global Capital. The investigation is reportedly being conducted by New York Attorney General Letitia James, Bloomberg reported, citing sources familiar with the matter.
Federal prosecutors and the Securities and Exchange Commission are reportedly engaged in investigating, seeking interviews with potential witnesses associated with both Genesis and DCG.
According to the report, the investigation examines loans and other transactions performed between the companies. DCG revealed last year that it had received around $575 million in loans from Genesis. Additionally, officials are looking at a letter to shareholders from DCG’s founder and CEO, Barry Silbert, mentioning a $1.1 billion promissory note, which he stated resulted from DCG assuming liabilities from Genesis connected to the collapse of the hedge fund Three Arrows Capital (3AC).
The promissory note and how it was disclosed to investors has been a focal point of the operation, according to the sources. Former acting U.S. Attorney Seth DuCharme is representing DCG in the case.
It remains unclear whether any of these investigations will lead to formal complaints. A spokesperson for DCG told Bloomberg that the company is cooperating with regulatory bodies and investigative agencies as required. It also added that transactions between the companies were “always structured on an arm’s length basis and priced at prevailing market interest rates.”
Genesis filed for Chapter 11 bankruptcy in January, following months of liquidity issues amid the bear market and the collapse of notable crypto firms, including 3AC and crypto exchange FTX. At the time, the company’s filing estimated liabilities of $1 billion to $10 billion and assets in the same range.
Genesis is the largest unsecured creditor of FTX and its affiliates, with $226 million owed. The companies recently reached an agreement to settle the dispute.
DCG’s venture capital portfolio includes Grayscale, Genesis, and CoinDesk, among some 200 crypto-related companies. It also has equity in other companies, including the crypto exchange Luno and advisory firm Foundry.