The investigations by the US Department of Justice and SEC, which seem to be in their early stages, are focussed on money transfers between DCG and its Genesis business.
The Eastern District of New York (EDNY) of the US Department of Justice and the US Securities and Exchange Commission are looking into transfers between Digital Currency Group and Genesis, according to a late-Friday Bloomberg story.
The prosecutors of the DOJ’s Eastern District of New York office have requested interviews and papers from DCG and Genesis, the report stated, while the SEC looks to be in a similarly early stage of its own inquiry.
Neither Genesis nor DCG, which is also the parent firm of CoinDesk, had “been accused of misconduct,” according to the story, which cited persons with knowledge of the situation. The article claims that the inquiries are particularly concentrated on the financial interactions between Genesis and DCG.
Genesis Trading had significant losses as a result of loans made to the now-imploded hedge fund Three Arrows Capital, and DCG assumed the claim for Genesis Trading in June of last year. Genesis Trading later filed a claim for $1.2 billion.
Genesis announced in November that its lending division would stop allowing withdrawals, which had an impact on businesses like Gemini, which relied on Genesis for its Earn platform. Barry Silbert, the creator of DCG, and Cameron Winklevoss, the co-founder of Gemini, have recently started a public spat about problems related to this suspension.
Genesis has also made significant workforce reductions, replacing its executive leadership, and nearly halving its headcount in recent months. The following collapse of the crypto-empire FTX significantly harmed Genesis’s financial statements.
Genesis has also hired advisers to research options, some of which may involve declaring bankruptcy under Chapter 11. Genesis creditors had filed claims worth more than $1.8 billion as of the beginning of December, according to a previous CoinDesk story.
Meanwhile, another DCG subsidiary, Grayscale, is encountering troubles with its major bitcoin trust product. Last month, a discount between the price of a share of the trust and the price of bitcoin fell below 50%, signaling a lack of confidence in the product or in investors’ ability to get their money back.