DCG faces US investigation over internal fund transfers

Bloomberg

US authorities are digging into the internal financial dealings of Barry Silbert’s expansive crypto empire, according to people familiar with the matter.
Federal prosecutors in Brooklyn are scrutinising transfers between Digital Currency Group (DCG) and an embattled subsidiary that offers crypto lending services, said the people, who asked not to be named because the probe hasn’t been made public. They’re also delving into what investors were told about those transactions.
Prosecutors have started requesting interviews and documents, one of the people said. The Securities and Exchange Commission (SEC) is also conducting an investigation, another person said. The probes are in early phases and neither Silbert, Digital Currency Group, nor any of its subsidiaries have been accused of wrongdoing.
Silbert referred a request for comment to a DCG spokesperson. In a statement, the company said, “DCG has a strong culture of integrity and has always conducted its business lawfully. We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.”
Genesis, the subsidiary whose unit offers lending services, said in a statement that it doesn’t comment on specific legal or regulatory matters. “Genesis maintains regular dialogue and cooperates with relevant regulators and authorities when it receives inquiries,” it said.
The SEC and US Attorney’s Office for the Eastern District of New York declined to comment. It’s unclear specifically which intercompany activity is drawing scrutiny.
Cracks in Silbert’s Digital Currency Group juggernaut started to show after Genesis sustained heavy losses from the collapse last year of hedge fund Three Arrows Capital. As the crypto rout deepened in late 2022, scrutiny over the web of financial relationships at DCG intensified.
Financial pressure ramped up further following crypto exchange FTX’s sudden and spectacular collapse in November. Genesis Global Capital, the lending arm of Genesis, was hit particularly hard and halted customer withdrawals and new loan originations. The freeze remains in place.
One of the people familiar with the criminal probe said the investigation into Silbert’s empire began prior to FTX’s implosion. For its part, DCG has said it’s insulated from the troubles at Genesis. In a letter to shareholders, Silbert disclosed that DCG received about $575 million in loans from Genesis Global Capital that are due this May. He also mentioned a $1.1 billion promissory note due in June 2032, resulting from DCG assuming liabilities Genesis had from exposure to Three Arrows. Silbert is DCG’s chief executive as well as the group’s founder.
Silbert added that intercompany loans between DCG and Genesis were made in the ordinary course of business and “always structured on an arm’s length basis and priced at prevailing market interest rates.”
The reach of DCG, one of crypto’s last-standing empires, is sprawling: In addition to Genesis, it also controls digital-asset manager Grayscale Investments, which helms a multi-billion dollar Bitcoin trust.
DCG, which was once valued at $10 billion, is also the parent of crypto-mining service provider Foundry Digital, news publication CoinDesk and Luno, a London-based exchange it acquired in 2020.
The conglomerate announced it planned to shutter wealth manager HQ at the end of this month. DCG also said that Genesis Global Trading Inc, the brokerage unit of Genesis, was laying off roughly 30% of its staff.