Digital Currency Group under investigation from U.S. authorities over internal transfers

• Following liquidity issues, Genesis suspended all withdrawals involving parent company DCG last month.
• U.S. authorities have since launched an investigation into the company’s internal financial dealings.

As the Digital Currency Group (DCG) announced the closure of its wealth management unit, U.S. authorities launched an investigation into the company’s internal financial dealings on 7 January.

DCG is the parent company of Grayscale and crypto lender Genesis, both of which were experiencing severe liquidity issues at press time. According to sources familiar with the situation, Federal authorities in Brooklyn have started investigating internal transfers between DCG and its troubled subsidiary, Genesis. They are also investigating what the DCG had revealed to investors about the transfers.

The investigation is being carried out by prosecutors alongside the U.S. Securities and Exchange Commission (SEC). The investigation is still in its early stages, and neither DCG nor Barry Silbert have been interviewed.

DCG’s troubled subsidiary stated that it will not comment on any specific legal or regulatory issues. When Genesis receives inquiries, it maintains regular dialogue and cooperates with relevant regulators and authorities.

The tussle between Digital Currency Group and Genesis

Following the collapse of cryptocurrency exchange FTX, crypto lender Genesis encountered major difficulties. Following liquidity issues, Genesis suspended all withdrawals last month, involving parent company DCG.

DCG, on the other hand, has remained silent, claiming that Genesis’ problems are their own and that it operates as an independent company. DCG founder Barry Silbert stated in a letter to shareholders in November 2021 that he received loans worth $575 million from Genesis Global Capital, which are due in May 2023.

Silbert added that these intercompany loans were routine business transactions that were always structured on an arm’s length basis and priced at market interest rates.

However, cryptocurrency exchange Gemini has taken umbrage to DCG, claiming that it has more than $900 million in deposits from its earned products with Genesis. Gemini President Cameron Winklevoss accused Silbert of halting efforts to resolve the issue. He also stated that DCG and Genesis are inextricably linked.