U.S. Prosecutors to Investigate Financial Transactions Between DCG and Genesis: Report

Investigation of money transfer between DCG and subsidiary Genesis

It turned out that US federal prosecutors are investigating crypto asset (virtual currency) conglomerate company Digital Currency Group (DCG) and its subsidiary Genesis. Bloomberg reported on Thursday, citing sources familiar with the matter.

Federal prosecutors are reportedly investigating money transfers between DCG and Genesis, whether investors were informed of transactions between the two entities, and whether there was any wrongdoing.

Prosecutors at the Justice Department’s Eastern District Office in New York have asked the companies for questions and documents, and the U.S. Securities and Exchange Commission (SEC) has launched a similar investigation, the sources said.

These investigations are still preliminary, and neither company has been accused of wrongdoing.

A DCG spokeswoman said Wednesday she was not aware of the investigation. “DCG has a culture of integrity and has always operated according to the law. and

Genesis, meanwhile, declined to comment on whether it was under investigation, saying it would “cooperate with any inquiries from authorities.”

DCG is a holding company of major cryptocurrency companies established in 2015. In addition to Genesis, it has subsidiaries such as Grayscale and CoinDesk, and as of April 2022, the affiliated companies had more than 1,000 employees.

Background of inter-company loans, etc.

Regarding the “remittance between DCG and Genesis” that is the subject of the investigation, it is believed that it refers to the inter-company loans that DCG was providing.

DCG received a loan of approximately 75.9 billion yen ($575 million) from one of its subsidiaries, Genesis, a major cryptocurrency lender. Meanwhile, DCG has taken over approximately ¥145 billion ($1.1 billion) of debt owed to Genesis in the 3 Arrows Capital (3AC) bankruptcy.

Subsidiary Genesis is said to be in a difficult situation after suffering a large loss due to the bankruptcy of 3AC and FTX last year.

The company’s derivatives department revealed that about 24 billion yen of funds were tied up with FTX due to the freezing of accounts due to the financial crisis. Due to this, Genesis has suspended redemption and withdrawal services and new loan structuring services since November last year.

The company is laying off 30% of its workforce and is reportedly considering filing for bankruptcy by Chapter Eleven as a possibility.

The suspension of Genesis withdrawals has also affected cryptocurrency exchange giant Gemini, which used the Genesis yield platform. Gemini’s yield service has also been forced to suspend the redemption of user funds.

Gemini co-founder Cameron Winklevoss has asked DCG to enter into negotiations to pay back approximately ¥120 billion ($900 million) in Gemini client assets.

Relation: Gemini founder criticizes DCG, seeks repayment of customer funds of 120 billion yen

GBTC Negative Divergence

Another DCG subsidiary, crypto investment firm Grayscale, is also facing problems with its mutual fund Bitcoin Trust (GBTC). Currently, the discount rate to the Bitcoin price has reached a discount of about -45% (negative divergence).

Relation: Bitcoin investment trust GBTC litigation issue, proposal to eliminate negative divergence