dcg: Crypto empire DCG faces US investigation over internal transfers

Synopsis

Prosecutors have started requesting interviews and documents, one of the people said. The Securities and Exchange Commission is also conducting an investigation, another person said. The probes are in early phases and neither Silbert, Digital Currency Group, nor any of its subsidiaries have been accused of wrongdoing.

dcg: Crypto empire DCG faces US investigation over internal transfers  0 US authorities are digging into the internal financial dealings of Barry Silbert’s expansive crypto empire, according to people familiar with the matter.

Federal prosecutors in Brooklyn are scrutinizing transfers between Digital Currency Group Inc. and an embattled subsidiary that offers crypto lending services, said the people, who asked not to be named because the probe hasn’t been made public. They’re also delving into what investors were told about those transactions.

Prosecutors have started requesting interviews and documents, one of the people said. The Securities and Exchange Commission is also conducting an investigation, another person said. The probes are in early phases and neither Silbert, Digital Currency Group, nor any of its subsidiaries have been accused of wrongdoing.

Silbert referred a request for comment to a DCG spokesperson. In a statement, the company said, “DCG has a strong culture of integrity and has always conducted its business lawfully. We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.”

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View Details »Genesis, the subsidiary whose unit offers lending services, said in a statement that it doesn’t comment on specific legal or regulatory matters. “Genesis maintains regular dialogue and cooperates with relevant regulators and authorities when it receives inquiries,” it said.

The SEC and US Attorney’s Office for the Eastern District of New York declined to comment. It’s unclear specifically which intercompany activity is drawing scrutiny.

Cracks in Silbert’s Digital Currency Group juggernaut started to show after Genesis sustained heavy losses from the collapse last year of hedge fund Three Arrows Capital. As the crypto rout deepened in late 2022, scrutiny over the web of financial relationships at DCG intensified.

Financial pressure ramped up further following crypto exchange FTX’s sudden and spectacular collapse in November. Genesis Global Capital, the lending arm of Genesis, was hit particularly hard and halted customer withdrawals and new loan originations. The freeze remains in place.

One of the people familiar with the criminal probe said the investigation into Silbert’s empire began prior to FTX’s implosion.

For its part, DCG has said it’s insulated from the troubles at Genesis.

In a November letter to shareholders, Silbert disclosed that DCG received about $575 million in loans from Genesis Global Capital that are due this May. He also mentioned a $1.1 billion promissory note due in June 2032, resulting from DCG assuming liabilities Genesis had from exposure to Three Arrows. Silbert is DCG’s chief executive as well as the group’s founder.

Silbert added that intercompany loans between DCG and Genesis were made in the ordinary course of business and “always structured on an arm’s length basis and priced at prevailing market interest rates.”

The reach of DCG, one of crypto’s last-standing empires, is sprawling: In addition to Genesis, it also controls digital-asset manager Grayscale Investments, which helms a multi-billion dollar Bitcoin trust.

DCG, which was once valued at $10 billion, is also the parent of crypto-mining service provider Foundry Digital, news publication CoinDesk and Luno, a London-based exchange it acquired in 2020.

The conglomerate announced on Thursday it planned to shutter wealth manager HQ at the end of this month. DCG also said that Genesis Global Trading Inc., the brokerage unit of Genesis, was laying off roughly 30% of its staff.

Earn Product
Cameron Winklevoss, who co-founded Gemini Trust Co., has been publicly clashing with Silbert.

Gemini had partnered with Genesis Global Capital to offer the product that lets users earn high yields on their cryptocurrency holdings for which withdrawals remain halted. Customers haven’t been able to pull money from the product known as Earn since mid-November.

Winklevoss recently accused Silbert of stalling efforts to resolve the issue and claimed DCG and Genesis are “beyond commingled.”

In response, Silbert denied several of Winklevoss’s accusations in a Tweet. He said that DCG had delivered a proposal to Genesis and advisers for Winklevoss on Dec. 29, but didn’t receive a reply. He added that “DCG has never missed an interest payment to Genesis and is current on all loans outstanding.”

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    Updated: 01/08/2023 — 03:00