On 17 January 2025, the United States Securities and Exchange Commission (US SEC) published order instituting cease-and-desist proceedings, pursuant to section 8a of the United States Securities Act of 1933, making findings, and imposing a cease-and-desist order and announced a settlement with Digital Currency Group Inc. (DCG) and its subsidiary Genesis Global Capital’s former CEO, Soichiro “Michael” Moro, for misleading investors about the financial health of Genesis. The parties will pay a combined $38.5 million in civil penalties.
DCG and Moro were found to have negligently misrepresented the financial condition of Genesis following the collapse of Three Arrows Capital (TAC), one of Genesis’s largest borrowers. TAC defaulted on a $2.4 billion loan in June 2022, resulting in a shortfall in Genesis’s balance sheet. DCG and Moro portrayed an overly optimistic financial outlook, including public statements that concealed the extent of Genesis’s exposure and the limited financial support provided by DCG.
The US SEC found that DCG and Moro violated Section 17(a)(3) of the United States Securities Act of 1933 by creating a materially false impression of Genesis’s financial stability. The settlement requires DCG to pay $38 million and Moro $500,000 in penalties. Both parties consented to a cease-and-desist order without admitting or denying the findings.
Genesis Global Capital was a prominent player in crypto asset lending. Its business model involved borrowing crypto assets from retail investors and lending them to institutional clients to generate revenue. However, the collapse of Three Arrows Capital in June 2022 caused Genesis to face a severe liquidity crisis due to a $1 billion shortfall in its collateral.
On 13 June 2022, Three Arrows Capital defaulted on a $2.4 billion loan. Genesis suffered a shortfall of at least $500 million, escalating to $1 billion as cryptocurrency prices fell in subsequent days.
On 15 June 2022, Genesis tweeted that its balance sheet was “strong,” a statement reviewed and approved by Moro, despite the company’s precarious financial condition.
On 30 June 2022, DCG executed a $1.1 billion promissory note to artificially bolster Genesis’s balance sheet, which was used to project positive equity. This action was not accompanied by sufficient disclosure to investors.
In July 2022, Moro tweeted that DCG had assumed Genesis’s liabilities, misleadingly implying that DCG had injected actual capital into Genesis, when in reality no such capital transfer occurred.
By November 2022, Genesis was unable to meet withdrawal requests and suspended operations, filing for bankruptcy in January 2023.
According to Acting Director of the SEC’s Division of Enforcement, Sanjay Wadhwa, “It is vital that companies and their officers speak truthfully to the investing public, especially in times of financial instability or turmoil.”
The settlement is intended to deter similar deceptive practices and reinforce the US SEC’s commitment to protecting investors and ensuring market integrity within the emerging digital asset industry.
The penalties of $38 million for DCG and $500,000 for Moro will be directed to the US Treasury. Both parties are subject to cease-and-desist orders under Section 8A of the United States Securities Act of 1933 and both have agreed not to challenge the findings in any related investor actions.
DCG must make its payment within 14 days, while Moro is required to settle within 30 days. Failure to comply will result in accruing interest on the unpaid amounts.
(Source: https://www.sec.gov/files/litigation/admin/2025/33-11357.pdf, https://www.sec.gov/files/litigation/admin/2025/33-11358.pdf, https://www.sec.gov/newsroom/press-releases/2025-22)
