The crypto sector continues to be rocked by the collapse of Sam Bankman-Fried’s empire.
Many firms are still on edge to see if they will suffer the same fate as the bankrupt lender BlockFi.
All eyes were on the lender’s subsidiary, Digital Currency Group (DCG), also known as Genesis Global Capital. Last November, the FTX bankruptcy saw the brokerage block customers from withdrawing funds and give out loans to new customers. The division had a total of $2.8 billion in active loans at the end of the third quarter.
The funds were placed in the FTX trading bank by the company.
Regulators should keep a close watch on this. According to Bloomberg News, the Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) are conducting separate investigations into the parent company and the relations between them.
Relations Between DCG and Genesis
Federal prosecutors are investigating the flow of money between DCG and Genesis, among other matters. Investors would also like to know what information was provided about transactions between the two firms.
This is similar to the interest in the links between FTX (and its sister company) Alameda Research, a hedge fund that was also available to institutional investors as a trading platform. The downfall of Bankman-Fried’s empire revealed that funds from FTX customers had been loaned to Alameda, estimated at $10 billion. However, the two firms were supposed to remain separate, despite having the same founder.
Federal investigators have requested documents from DCG and Genesis. Both inquiries are still in the early stages and no charges have been filed against Digital Currency Group or Genesis.
“DCG has a strong culture of integrity and has always conducted business lawfully. We are not aware of or have reason to believe that there is an investigation by the Eastern District of New York into DCG,” the company told Bloomberg.
Genesis had the following statement to Bloomberg: “Genesis maintains a regular dialogue and cooperates with regulators and relevant authorities when it receives inquiries.”
Neither DCG nor Genesis responded to comments. The SEC and DoJ also did not respond. The Justice Department’s investigation is being conducted by the United States Attorney’s
Digital Currency Group (DCG), a crypto empire owned by Barry Silbert, is under the scrutiny of regulators. This news was first reported by the Wall Street Journal a few days ago, and has since caused a stir in the crypto space. Genesis, the sister company of DCG, is reportedly facing near bankruptcy. As a result, the company had to take drastic steps to let go of 30% of its workforce.
A spokesperson for the company said to TheStreet on January 5th that they are “working with advisers to assess options to preserve client assets and move the business forward”. This issue has also put the Gemini Exchange, owned by Bitcoin Billionaire twins Tyler and Cameron Winklevoss, in a difficult spot. The platform offers a rewards program known as Gemini Earn, which provides cryptocurrency clients up to 8% annual returns on cryptocurrency deposits, based on the assets they hold. Genesis serves as the primary lender to Gemini Earn.
The companies have been unable to resolve the issue for quite some time, prompting Cameron Winklevoss to release an open letter to Barry Silbert, the founder and CEO of DCG. It was revealed that in November, DCG had taken out a loan of $575 million, due in May. In addition, there is a $1.1 billion note due in June 2032, linked to the collapse of hedge fund Three Arrows Capital (3AC).
Silbert also owns Grayscale Investments, a digital asset management company that holds the Bitcoin Trust, Foundry Digital, a provider of crypto mining services, and Luno, a London-based ETH-based cryptocurrency exchange. Lastly, DCG is the parent company of CoinDesk, the crypto news website that published the article about FTX.
