The United States Securities and Exchange Commission (SEC) has charged Digital Currency Group (DCG) and its former Genesis CEO, Soichiro “Michael” Moro, with misleading investors about Genesis’ financial health following the collapse of Three Arrows Capital (3AC).
According to an SEC filing on Jan. 17, DCG and Moro have agreed to pay a combined $38.5 million in civil penalties. DCG will pay $38 million, while Moro will pay $500,000. Despite the penalties, both parties settled without admitting to or denying violations of the Securities Act of 1933.
Genesis’ Legal Troubles
The settlement adds another chapter to Genesis’ legal saga. The crypto lending platform filed for Chapter 11 bankruptcy in January 2023, largely due to losses tied to 3AC’s 2022 default. The downfall of 3AC, once a prominent crypto hedge fund, triggered widespread instability among firms exposed to its collapse.
Three Arrows Capital’s financial troubles stemmed from its $570 million investment in 10.9 million locked LUNA tokens before the Terra ecosystem collapsed in May 2022. By June 2024, the investment had lost over 99% of its value, plummeting to just $670.
Unable to meet margin calls by June 16, 2022, 3AC was forced to liquidate certain positions. Days later, on June 27, a British Virgin Islands court ordered 3AC’s liquidation. On the same day, Voyager Digital issued a notice of default to 3AC for failing to repay a loan of 15,250 Bitcoin.
Former CEO’s Reassurances
In the aftermath, Michael Moro sought to reassure investors about Genesis’ stability. In a July 2022 social media thread, Moro stated, “We previously said in June that we mitigated our losses with respect to a large counterparty who failed to meet a margin call.”
