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Digital Currency Group (DCG) has agreed to pay a hefty $38 million settlement with the Securities and Exchange Commission (SEC) in response to allegations of negligent misrepresentation and violations of federal securities laws.
According to reports, DCG misled investors about its subsidiary Genesis Global Capital’s financial health, despite knowing that the company was struggling. The controversy arose after Genesis filed for bankruptcy in early 2023 following a major borrower defaulting on $2.4 billion in loans during the 2022 crypto crash.
As per allegations, Genesis’ financial strain increased significantly after the default of Three Arrows Capital, one of its largest borrowers. Despite this, DCG attempted to conceal the truth by issuing a $1.1 billion promissory note to Genesis, which artificially boosted the subsidiary’s balance sheet. However, this effort failed to resolve the company’s liquidity crisis, ultimately resulting in Genesis halting withdrawals and subsequently filing for bankruptcy.
The SEC charged DCG under Section 17(a)(3) of the Securities Act, which prohibits negligence-based fraudulent conduct in securities offerings. As a result, the company has agreed to pay a $38 million civil penalty and comply with a cease-and-desist order.
“The findings emphasize the importance of transparency in the financial markets,” the SEC stated, highlighting the need for investor protection within the volatile crypto industry. This settlement serves as another example of the regulatory body’s increased scrutiny on crypto-related firms.
The agreement represents a broader crackdown on the crypto space, echoing the approach taken by former SEC Chair Gary Gensler to enforce securities laws.
Source: fullycrypto.com
