The U.S. Securities and Exchange Commission (SEC) has charged Digital Currency Group (DCG) and former Genesis Trading CEO, Michael Moro, for allegedly misleading investors about the financial stability of the company following the collapse of Three Arrows Capital (3AC).
Genesis Bankruptcy
Genesis filed for Chapter 11 bankruptcy in January 2023, tracing its financial issues back to the collapse of 3AC. The hedge fund's failure was due to its purchase of locked LUNA tokens for $570 million, almost entirely wiped out following the Terra ecosystem's implosion in May 2022. When 3AC defaulted on loans in June 2022, court-ordered liquidation followed. Genesis also noted 3AC's default on debts amounting to 15,250 Bitcoin.
SEC Investigation
Amid the chaos, then-Genesis CEO Michael Moro reassured investors that DCG and Genesis had made efforts to mitigate losses from 3AC’s default. However, the SEC's investigation found discrepancies between these statements and the actual financial state of the companies. The case ended with a $38.5 million settlement, with DCG paying $38 million and Moro fined $500,000. Both parties neither admitted nor denied violations of the Securities Act of 1933.
Impact of the Collapse
The collapse of 3AC impacted numerous companies with financial exposure to the hedge fund's risky positions. Genesis, as a major crypto lender, was significantly affected, and the bankruptcy dealt a major blow to DCG’s reputation. The SEC's charges highlight the agency's intent to hold major players accountable in a still-volatile crypto market. Although the settlement closes one chapter with DCG and Moro, it serves as a reminder of the severe consequences of misinformation in this dynamic industry.
The SEC's charges against DCG and former Genesis leadership emphasize the importance of transparency and reliable information in the cryptocurrency sector. This case serves as a reminder of the risks associated with investing in such a volatile market.
