Barry Silbert’s crypto empire, Digital Currency Group, is facing another probe into its financial dealings with subsidiary Genesis Global Capital — this time by New York state’s top law enforcement officer, according to two people familiar with the investigation.
(Bloomberg) — Barry Silbert’s crypto empire, Digital Currency Group, is facing another probe into its financial dealings with subsidiary Genesis Global Capital — this time by New York state’s top law enforcement officer, according to two people familiar with the investigation.
In recent months, New York Attorney General Letitia James’s office has requested information from former executives of Genesis, a cryptocurrency lender that filed for bankruptcy in January, said the people, who asked not to be identified because the inquiry had not been made public. Former Genesis chief risk officer, Michael Patchen, was questioned recently, one of the people said.
Federal prosecutors in Brooklyn and the Securities and Exchange Commission are already conducting investigations and seeking interviews with potential witnesses at Genesis and its parent company, DCG. Genesis suffered heavy losses last year during the crypto market downturn, primarily after the collapse of digital-assets hedge fund Three Arrows Capital and crypto exchange FTX.
A spokesperson for DCG said that the company is assisting regulators and investigative agencies upon request.
“DCG has always conducted its business lawfully and with the highest ethical standards,” the spokesperson said.
A spokesperson for the attorney general’s office declined to comment. It’s unclear at this point if any of the investigations will result in any complaints being filed.
Patchen was an executive at Genesis for only three months before stepping down in October 2022. His lawyer, Doug Jensen, declined to comment when asked on Thursday about the testimony.
The state probe, which has not been previously reported, comes as James has sought to position herself as a leading crypto enforcer in the US, having raised the alarm about the industry several years ago and proposing a new state law in May to tighten rules over cryptocurrency companies. Lawmakers haven’t taken up the proposal, but could do so at any time.
DCG, which was once valued at $10 billion, disclosed last year that the company received about $575 million in loans from Genesis Global Capital. In a letter to shareholders last November, Silbert, DCG’s founder and chief executive officer, referred to a $1.1 billion promissory note, which he said came about as the parent company stepped in to assume liabilities from Genesis related to the implosion of Three Arrows.
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.”
DCG is a sprawling digital-assets conglomerate that controls several crypto entities, including Grayscale Investments, which manages the world’s largest crypto fund, Grayscale Bitcoin Trust. It has also backed more than 150 blockchain-related businesses globally, helping to legitimize digital currencies as a credible asset class.
One focus for regulators and prosecutors has been on the promissory note and how it was characterized to investors, one person familiar with the investigations said. DCG has hired an alum of the federal prosecutors’ office leading one of the investigations, former Acting US Attorney Seth DuCharme, to represent the company.
James has been busy going after numerous crypto firms in New York. The Democrat filed a civil lawsuit last year against former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky for allegedly duping investors out of billions of dollars, beating federal prosecutors to court months before they brought criminal charges. Mashinsky pleaded not guilty to the criminal charges last month.
(Corrects story that originally ran on Aug. 4 to clarify the relationship between DCG and Grayscale Bitcoin Trust in 11th paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.