The US Securities and Exchange Commission (SEC) has filed a lawsuit against Digital Currency Group (DCG) for allegedly misleading investors. According to the markets regulator, the firm failed to disclose the extent of its exposure to Three Arrows Capital (3AC), the defunct hedge fund, thus exposing investors.
According to the lawsuit filing, DCG failed to update its investors and the public about Genesis’ financial status. In a particularly flagged instance, the SEC said Genesis defaulted in one of its margin call trades with 3AC. While it updated its executives about possible default in mid-June, the SEC said communications with the public were misleading.
“In mid-June 2022, a large borrower defaulted on a margin call, which compromised GGC’s business,” the SEC said in a filing on Friday. “Yet, Digital Currency Group negligently engaged in conduct that misleadingly downplayed the impact of that default and overstated what Digital Currency Group did to help GGC in the aftermath.”
The markets regulator said DCG has already submitted an Offer of Settlement as part of the proceedings. With this, the investment giant will pay $38 million.
Meanwhile, the US SEC is ramping its legal cases as the Gary Gensler era winds down. Earlier this week, it secured $45 million from Robinhood for violating securities laws.
While the markets regulator clarified the role of DCG in the wrongdoing, it also indicted one of its former Executives in a suit. While leading Genesis as CEO, the US SEC said Soichiro “Michael” Moro was guilty of negligence.
Prosecutors noted that Moro downplayed the impact of the margin call default to the public. In one case cited, the lawsuit said he posted on X that the firm had “shed the risk” associated with the Three Arrows Capital default. The regulator said this was misleading to the public.
“Moro edited, reviewed, and approved this tweet before issuing it from his personal Twitter account,” the SEC said. “This tweet was materially false or misleading because Genesis remained exposed to movements in the value of the collateral associated with the TAC loan.”
Moro has also agreed to pay $500,000 as part of the settlement. Neither he nor Digital Currency Group admitted to or denied the US SEC’s allegation.
Meanwhile, this lawsuit and settlement came as the Grayscale Investment parent company expanded its list of subsidiaries. As reported earlier by Coingape, the firm has split Foundry into two companies to drive operational efficiency.
In addition, the firm has launched Yuma as its new subsidiary focusing on the Bittensor ecosystem.
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