DCG Pays $38 Million Fine to Settle SEC Investigation — WSJ

By Vicky Ge HuangCrypto company Digital Currency Group agreed to pay a $38 million fine to settle with the Securities and Exchange Commission over allegations of negligence in overseeing a program offered by its now-defunct lending subsidiary Genesis Global Capital.The SEC announced the resolution on Friday, saying DCG's failure to exercise reasonable care created a materially false impression to the public regarding Genesis's financial health.Michael Moro, former chief executive of Genesis, also settled with the SEC for $500,000. DCG and Moro resolved the SEC's probe without admitting or denying the agency's findings.The SEC found that in mid-June 2022, Three Arrows Capital, a crypto asset hedge fund and one of Genesis's largest borrowers, defaulted on a margin call. The default compromised Genesis's financial condition, leading to a nearly $1 billion loss.DCG and Moro downplayed the impact of the loss and overstated what DCG did to help Genesis in the aftermath, according to the SEC. The agency said Moro made false or misleading statements on X, formerly known as Twitter, after Three Arrows' default. In the post, Moro misleadingly characterized Genesis's balance sheet as strong and falsely stated that Genesis had "shed the risk" related to the default, the SEC said.The SEC further alleged that DCG executives retweeted some of Moro's statements. After DCG took on Genesis' liabilities via a 10-year promissory note, Moro misleadingly tweeted that DCG had ensured that Genesis had "adequate capital to operate" when DCG had not transferred any capital to Genesis, the SEC said.Genesis suspended withdrawals in late 2022 after failing to meet a wave of redemption requests. The company filed for bankruptcy in January 2023."We are pleased to have concluded an extensive investigation process that was limited in its findings and focused on the social media posts and communications made by our former operating subsidiary, Genesis Global Capital," said a DCG spokeswoman.Marcus Asner, an attorney who represents Moro, said the former Genesis CEO welcomes this settlement with the SEC and appreciates the opportunity to put this matter behind him.This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).