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Odaily Translator |

Bloomberg

, by Allyson Versprille and Ava Benny-Morrison

Odaily Translator |

U.S. authorities are investigating the internal financial dealings of Barry Silbert's sprawling crypto empire, according to people familiar with the matter.

Federal prosecutors in Brooklyn are examining transfers between Digital Currency Group and its troubled crypto-lending service subsidiary, people familiar with the matter said. They are also digging into what investors were told about the deals.

Prosecutors have already begun demanding interviews and documents, one of the people said. The U.S. Securities and Exchange Commission (SEC) is also investigating, another person said. The investigation is still in its early stages and neither Barry Silbert nor DCG nor any of its subsidiaries have been accused of wrongdoing.

In a statement, DCG said, "DCG has a strong culture of integrity and has always conducted business lawfully. We are not aware of, and have no reason to believe, any investigation into DCG by the Eastern District of New York."

Genesis said it does not comment on specific legal or regulatory issues. "Genesis maintains a regular dialogue when inquiries are received and cooperates with relevant regulators and authorities."

The SEC and the U.S. Attorney's Office for the Eastern District of New York declined to comment. It was not immediately clear which company-to-company transfers were under scrutiny.

Cracks began to appear in Silbert's DCG empire after hedge fund Three Arrows Capital collapsed last year, leading to heavy losses at Genesis. As the cryptocurrency rout deepens in late 2022, so does scrutiny of DCG’s financial ties.

The financial pressure on crypto exchange FTX intensified after it unexpectedly collapsed last November. Genesis' lending arm, Genesis Global Capital, was hit particularly hard and halted customer withdrawals and new loan originations, which have still not recovered.

A person familiar with the criminal investigation said the investigation into Silbert's crypto empire began before FTX's bankruptcy.

DCG said it had nothing to do with Genesis' issues.

In a letter to shareholders last November, Silbert revealed that DCG had a loan of about $575 million from Genesis Global Capital, due to mature in May this year. He also mentioned a $1.1 billion promissory note due in June 2032 due to DCG's assumption of Genesis' liabilities arising from its exposure to Three Arrows Capital. Silbert is CEO of DCG and founder of the group.

DCG is one of the existing empires in the cryptocurrency space, and its sphere of influence is expanding: In addition to Genesis, it also controls the digital asset management company Grayscale Investments, which controls the multi-billion dollar bitcoin trust fund.

At one point valued at $10 billion, DCG is also the parent company of crypto mining service provider Foundry Digital, media outlet CoinDesk and London exchange Luno (acquired in 2020).

The group announced on Thursday that it plans to close its wealth management subsidiary HQ Digital by the end of this month. DCG also said that Genesis Global Trading Inc., Genesis's brokerage arm, will cut about 30% of its workforce.

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Gemini Earn Product Controversy

Cameron Winklevoss recently accused Silbert of refusing to cooperate in resolving the issue and engaging in vicious delay tactics; demanding that Silbert publicly commit to working together to resolve the issue by January 8, 2023.

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In response, Genesis denied several of Cameron's allegations on Twitter. He said DCG submitted a proposal to Genesis and Cameron's advisers on December 29 last year but did not hear back. He added, "DCG has never defaulted on Genesis interest payments and is currently repaying all outstanding loans."