The United States Securities and Exchange Commission has charged Digital Currency Group (DCG) and former Genesis CEO Soichoro “Michael” Moro with misleading investors about the financial health of Genesis in the aftermath of the Three Arrows Capital (3AC) collapse.
According to the Jan. 17 filing, DCG and Moro have agreed to pay a combined $38.5 million in civil penalties, with DCG liable for $38 million and Moro liable for $500,000.
Moro and DCG agreed to the civil penalties without admitting to or denying any violations of the Securities Act of 1933.
The settlement is the latest chapter in the legal saga of Genesis, which filed for Chapter 11 bankruptcy protection in January 2023 due to a 2022 default by Three Arrows Capital — a former borrower of Genesis.
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The collapse of 3AC and its effect on Genesis
The collapse of 3AC sent shockwaves through the crypto industry, affecting all crypto firms exposed to the now-defunct crypto hedge fund.
Three Arrows Capital purchased approximately 10.9 million locked LUNA (LUNA) tokens for roughly $570 million before the collapse of the Terra ecosystem in May 2022.
The $570 million investment plummeted by well over 99% and was worth only $670 in June 2024 — a major hit to any company’s balance sheet and ability to pay back its loans.
By June 16, 2022, 3AC failed to meet margin calls from lenders and was forced to liquidate certain positions to pay back the creditors.
Several days later, on June 27, a court in the British Virgin Islands ordered 3AC to liquidate its assets.
The liquidation order came the same day that former brokerage company Voyager Digital issued a notice of default to 3AC for failure to repay a loan of 15,250 Bitcoin (BTC).
Following the liquidation of 3AC, former Genesis CEO Moro reassured investors that Digital Currency Group and Genesis were working to mitigate the losses incurred through the 3AC exposure.
“We previously stated in June that we mitigated our losses with respect to a large counterparty who failed to meet a margin call,” the former CEO wrote in a July 2022 social media thread.
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