The U.S. Securities and Exchange Commission (SEC) has charged Digital Currency Group (DCG) and its subsidiary, Genesis Global Capital, along with former Genesis CEO Michael Moro, for misleading investors about Genesis’s financial health following the collapse of Three Arrows Capital in 2022. DCG has agreed to pay a $38 million penalty, while Moro will pay $500,000.
According to the SEC’s order, the charges stem from the aftermath of Three Arrows Capital’s default on a margin call in June 2022. This default resulted in approximately a $1 billion loss for Genesis, significantly impacting its financial stability. However, the SEC alleges that DCG and Moro downplayed the severity of the situation and misrepresented the steps taken to mitigate the damage.
The SEC claims that Moro made false and misleading statements on Twitter following the default, portraying Genesis’s balance sheet as strong and falsely asserting that the risk associated with the default had been mitigated. DCG executives reportedly retweeted some of these misleading statements.
Furthermore, the SEC alleges that after DCG and Genesis entered into a 10-year promissory note, Moro, with the knowledge and participation of DCG personnel, misleadingly tweeted that DCG had ensured Genesis had “adequate capital to operate.” In reality, the SEC contends, DCG had not transferred any capital to Genesis.
“It is vital that companies and their officers speak truthfully to the investing public, especially in times of financial instability or turmoil,” stated Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “The Commission found that DCG and Moro fell short in that regard. Rather than being transparent about Genesis’s financial condition and DCG’s efforts to ensure Genesis’s continued operation, DCG and Moro painted a misleadingly rosy picture.”
Without admitting or denying the SEC’s findings, DCG and Moro have agreed to a cease-and-desist order and will pay civil penalties. DCG will pay $38 million, and Moro will pay $500,000.
