Cryptocurrency company, Digital Currency Group, ordered to pay a fine of $38 million due to alleged securities law violations by the SEC.
The U.S. Securities and Exchange Commission (SEC) has charged Digital Currency Group (DCG) and its subsidiary Genesis Global Capital LLC with misleading investors and engaging in unregistered securities offerings. These charges stem from allegations that Genesis and Gemini Trust Company, LLC offered and sold securities to retail investors without proper registration, violating securities laws.
According to the SEC, Genesis Global Capital, the embattled crypto lender, negligently engaged in conduct that misled investors in a lending program offered and sold by the company. The charges against DCG and the company's former CEO, Michael Moro, are related to services offered by Genesis Global Capital in July 2022.
The SEC states that DCG's conduct misleadingly downplayed the impact of a default and overstated what Digital Currency Group did to help Genesis Global in the aftermath. Moro, who was the CEO of Genesis Global when the securities offences were committed, has been charged with negligently engaging in conduct that misleadingly downplayed the impact of the default.
In mid-June 2022, a large borrower defaulted on a margin call, compromising Genesis Global Capital's business, according to the SEC. This default significantly impacted the company, leading to it suspending withdrawals in November 2022 after facing a wave of redemption requests. The company eventually filed for bankruptcy in January 2023.
The SEC filing does not specify the exact nature of the misleading statements or actions made by DCG or Moro. The charges against DCG and Moro are part of the SEC's effort to clean up pending cases against various crypto companies before the new leadership takes over. The SEC did not provide details on the penalties for Genesis Global Capital LLC in the filing, but DCG has been asked to pay a penalty of $38 million within 30 days. Moro has been asked to pay a penalty of $500,000 within the same timeframe.
These charges come just days before the SEC chair Gary Gensler leaves office on January 20. The charges highlight the regulatory scrutiny arising from the fallout of key crypto firm failures and the increasing effort by the SEC to enforce compliance in the digital asset sector. The charges against DCG and Genesis Global Capital involve accusations of misleading investors in connection with unregistered securities sales amid a market environment severely impacted by major crypto bankruptcies, most prominently FTX, which exposed risky practices and undermined trust in crypto investment entities.
The SEC's charges against Digital Currency Group (DCG) and its former CEO, Michael Moro, are not limited to alleged securities violations in the crypto lending sector but also extend to the financial industry, as they are alleged to have misled investors in a business related to securities. This business-related securities issue is said to be connected to services offered by Genesis Global Capital in July 2022, a time significantly impacted by the news of major crypto bankruptcies, such as FTX.
