DCG faces $3.3 billion lawsuit as Genesis reveals insider loan schemes

Newly unsealed court documents suggest that Digital Currency Group (DCG) knowingly used its bankrupt subsidiary, Genesis, as a private cash pool.

This was allegedly done despite repeated warnings about Genesis’s worsening financial condition.

A complaint filed by the Genesis Litigation Oversight Committee (LOC) in Delaware’s Court of Chancery alleges that DCG executives were aware of the legal risks tied to their control over Genesis but continued to extract value from it through internal loans and strategic misrepresentations.

The 250-page unredacted complaint includes internal emails and memos dating back to 2020, many of which suggest DCG operated Genesis as a fully controlled subsidiary to funnel funds for its own benefit.

At the heart of the allegations is the claim that Genesis was undercapitalised, lacked risk controls, and misled the public during key periods of market volatility, including after the collapse of Three Arrows Capital (3AC) and the downfall of FTX.

Lawsuit details internal strategy warnings and risk memos

The filing highlights how DCG’s then-Chief Financial Officer Michael Kraines flagged the legal exposure in a 2022 strategy memo, warning that creditors could seek to pierce the corporate veil and hold DCG liable as Genesis’s “alter ego.”

In the same document, Kraines described Genesis as “100% owned and controlled by DCG” and warned that this could prompt action from large creditors.

Despite these warnings, internal communications show that DCG delayed implementing risk oversight and used Genesis as a financial instrument to sustain its liquidity.

The documents claim that instead of addressing the fragile condition of Genesis, DCG and its executives intensified internal dealings.

Barry Silbert, CEO of DCG, is accused of referring to Genesis as a “de facto treasury” and using it to finance other parts of the group’s operations.

At one point, employees reportedly described Genesis’s internal culture as submissive, noting they were under pressure to prioritise DCG’s financial needs.

Public misrepresentations and disputed transactions under scrutiny

The complaint further claims that following the collapse of 3AC in 2022, Genesis was instructed to downplay its exposure and adhere to a fixed narrative.

Internal scripts were distributed to staff to ensure uniform public messaging, while executives continued to assert the company’s stability.

Silbert also allegedly amplified those claims through social media, reinforcing a false sense of security for retail and institutional clients alike.

Two financial transactions are under particular scrutiny. One involves a promissory note issued on 30 June 2022, while the other details a roundtrip deal made in September the same year.

Both are being challenged as fraudulent transfers, allegedly intended to mask financial distress and delay creditor action.

Genesis is now seeking to recover more than $3.3 billion from DCG, Barry Silbert, and other executives through multiple legal avenues.

Parallel lawsuits, repayments, and regulatory pressure mount

Genesis’s legal action is playing out across jurisdictions.

In Delaware, the firm is chasing over $2.2 billion in crypto assets, including Bitcoin and Ethereum.

A separate New York suit seeks to recover over $1 billion in alleged fraudulent transfers—$450 million to DCG and $297 million to its international arm.

An additional $34 million in tax-related payments are also being disputed as illegitimate.

Genesis’s financial collapse was triggered by 3AC’s failure and worsened by FTX’s demise. The firm filed for Chapter 11 bankruptcy in January 2023, listing debts over $3.5 billion.

Although a restructuring plan was finalised in August 2024, the tension with DCG remains unresolved. DCG defaulted on more than $620 million in obligations, prompting Genesis to sue for repayment, including 4,550 BTC.

Despite challenges, Genesis has returned $2.18 billion to over 232,000 customers, including through a pending $1.8 billion settlement with Gemini Earn users.

However, regulatory challenges persist. The Commodity Futures Trading Commission (CFTC) is pursuing Gemini for compliance violations, with a trial set for January 2025.

Earlier this year, the SEC charged both Genesis and DCG with investor fraud. DCG has since agreed to pay a $38 million settlement.

As Genesis continues its clawback efforts, DCG remains under scrutiny for its handling of intercompany finances and alleged efforts to mislead investors during the company’s final months before bankruptcy.

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