Silbert’s DCG loses $1.1 billion amid Genesis’ financial spiral

Digital Currency Group, the struggling crypto empire whose lending unit filed for bankruptcy last month, has reported a $1.1 billion loss for the 2022 financial year.

According to its Q4 2022 investor report, the New York-based firm attributed the bulk of losses to its exposure to Three Arrows Capital (3AC) and Alameda Research.

Genesis Global Trading, the lending arm of DCG, filed a $1.2 billion claim against Three Arrows Capital back in July 2022. But DCG assumed the entire claim, leaving Genesis with no outstanding liabilities tied to the now insolvent hedge fund. Additionally, Genesis has about $175 million worth of assets locked on FTX’s platform.

On a quarterly basis, DCG reported $143 million in revenues and $24 million in fourth-quarter losses. Overall, the Connecticut-based cryptocurrency giant’s consolidated 2022 revenue came in at $719 million. DCG reportedly held total assets of $5.3 billion with cash and liquid holdings of $262 million and investment assets of just $670 million as of 31 December, 2022.

The struggling venture capital conglomerate suspended its quarterly dividends until further notice as the company seeks to preserve cash, according to a Jan. 17 letter to shareholders.

Despite the challenges of last year, DCG said it “had hit a milestone regarding the restructuring of Genesis, pointing to a nonbinding term sheet agreement involving some of the main creditors.”

The Genesis collapse may have impacted over 100,000 creditors in the U.S. alone, based on the firm’s reported numbers. The lender’s assets were worth $5.3 billion while its aggregate liabilities, including intercompany debts, were ranging from $1.2 billion to $11 billion.

Owing creditors at least $3.4 billion, Genesis had already halted most activity on its platform and froze customer redemptions on November 16, citing a liquidity crunch triggered by significant exposure to FTX.

A consortium of Genesis creditors is suing Digital Currency Group (DCG) and its CEO Barry Silbert, alleging violations of the federal securities laws. Plaintiffs claiming to represent the whole class of the digital asset manager’s debtors said the decision to put Genesis into bankruptcy does not insulate Barry from accountability.

The lawsuit, filed by law firm Silver Golub & Teitell (SGT), claims that Genesis business ran afoul of securities laws because the products being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.

The lawsuit seeks a declaration that Genesis committed securities fraud and scammed crypto lenders by making false and misleading statements. In addition, the action alleged that Silbert intentionally misrepresented the company’s financial condition, violating section 10(b) of the United States Securities Exchange Act.