The bankruptcy of Sam Bankman-Fried's crypto empire continues to cause a stir in the crypto space.
The various firms continue to monitor each other to find out who will be the next collateral victims of this disaster after the lender BlockFi went under.
All eyes have been on lender Genesis, a subsidiary of cryptocurrency giant Digital Currency Group, also known as DCG. Last November, the brokerage prevented clients from making withdrawals and issuing new loans as a result of FTX's bankruptcy. The division halting the withdrawals is Genesis Global Capital, which works with institutional clients and had $2.8 billion in total active loans at the end of the third quarter.
The firm had funds locked up in its FTX trading account.
Genesis is also closely watched by regulators. According to Bloomberg News, the Justice Department and the Securities and Exchange Commission are conducting separate investigations into the lender's parent company and the relationship between the two companies.
Relations between DCG and Genesis
Federal prosecutors, for example, are closely examining the transfers of funds between DCG and Genesis. They also want to determine what investors were told about the transactions between the two companies.
This is similar to researchers' interest in incestuous relationships between FTX and its sister company Alameda Research, a hedge fund which was also a trading platform for institutional investors. The fall of the Bankman-Fried empire showed that funds from FTX clients had been lent to Alameda, in the amount of approximately $10 billion. However, the two companies were supposed to be independent even if they shared the same founder.
Federal investigators have requested documents from DCG and Genesis. Both investigations are still in the early stages and no charges have yet been filed against Digital Currency Group or Genesis.
"While we do not comment on specific legal or regulatory matters, Genesis maintains a regular dialogue and cooperates with relevant regulators and authorities when it receives inquiries," a spokesperson told TheStreet in an emailed statement.
DCG did not immediately respond to a request for comment. The Department of Justice and the SECOND he didn't reply either. The Justice Department's investigation is led by the US Attorney's Office for the Eastern District of New York.
โDCG has a strong culture of integrity and has always conducted its business legally. We have no knowledge of or reason to believe that there is any investigation by the Eastern District of New York into DCG," the company told Bloomberg.
The information about the regulators' investigations comes at a very bad time for DCG and its subsidiary. The Wall Street Journal reported a few days ago that Genesis was on the brink of bankruptcy. The company has also decided to take emergency measures, in particular the elimination of 30% of its workforce.
"We continue to work with our advisers, in collaboration with DCG and advisers appointed by various client groups, to evaluate options to preserve client assets and move the business forward," a spokesperson said. saying TheStreet on January 5.
A Genesis bankruptcy filing would also affect the Gemini cryptocurrency exchange founded by billionaire twin brothers Tyler and Cameron Winklevoss.
Genesis providing loans
Genesis partners with Gemini in a rewards program offered by the platform to attract customers. This program is called Gemini Earn. It is a high-yield savings product that promises cryptocurrency exchange clients up to 8% annual return on cryptocurrency deposits, depending on the assets held. Under this program, Genesis serves as Gemini's primary lender.
Genesis owes $900 million to users of Gemini's Earn. Gemini was also forced to pause withdrawals related to Gemini Earn following the decision by Genesis, which is owned by cryptocurrency giant Digital Currency Group.
For several weeks the two companies have been trying to solve the problem, but apparently things are not moving forward. So said Cameron Winklevoss in an open letter to Barry Silbert, the founder and CEO of DCG.
Silbert told investors last November that DCG received a $575 million loan from Genesis that is due in May. He also said there is a $1.1 billion note due June 2032 linked to the collapse of hedge fund Three Arrows Capital, or 3AC.
It stated that the loans were "always structured at arm's length and quoted at prevailing market interest rates."
In addition to DCG and Genesis, Silbert also controls Grayscale Investments, a digital asset management company that runs the Bitcoin Trust. DCG is also the parent company of Foundry Digital, a crypto mining service provider, and Luno, a London-based cryptocurrency exchange.
Finally, DCG also owns the crypto news site CoinDesk, which had published the article that raised suspicions around FTX.
