Digital Currency Group (DCG) and Soichoro “Michael” Moro, the former CEO of its now-defunct Genesis subsidiary, have agreed to pay a combined $38.5 million in civil penalties to settle charges of securities fraud with US Securities and Exchange Commission (SEC) .
The crypto venture capital firm will bear the brunt of the financial penalty and pay $30 million in fines, while Moro will be personally liable for a $500,000 fine. In addition to the fines, both DCG and Moro agreed to a cease-and-desist order. Neither DCG nor Moro admitted any wrongdoing. Moro is currently Chief Strategy Officer at INX.
The charges stem from DCG and Genesis’ response to the summer 2022 collapse of crypto hedge fund Three Arrows Capital (3AC) — Genesis’ second-largest borrower — which blew a billion-dollar hole in Genesis’ balance sheet.
“We are pleased to have concluded an extensive investigative process that was limited in its findings and focused on the social media posts and communications made by our former subsidiary, Genesis Global Capital,” a spokesperson for DCG told CoinDesk. “DCG has always strived to conduct its business with the highest integrity, and we believe our actions related to Genesis were consistent with this approach.”
Regulators, including New York Attorney General (NYAG) Letitia James, had accused DGC and Genesis, its wholly-owned crypto trading subsidiary, of working together to cover up the huge gap by falsely claiming that DCG had absorbed Genesis’ losses. What DCG allegedly did was issue Genesis a promissory note—essentially an IOU meant to generate liquidity—and promised to pay Genesis $1.1 billion over 10 years at 1% interest. DCG has denied that the promissory note was a sham.
“It is critical that companies and their officers speak truthfully to the investing public, especially during times of financial instability or turmoil. The Commission found that DCG and Moro fell short in that regard,” said Sanjay Wadhwa, Acting Director of the SEC’s Division for enforcement, in a statement Friday. “Instead of being transparent about Genesis’ financial situation and DCG’s efforts to ensure Genesis’ continued operations, DCG and Moro painted a misleading rosy picture.”
The SEC and the Department of Justice reportedly began investigating DCG in 2023. James’ civil suit against DCG is ongoing. She is demanding $3 billion in fines.
