A newly unsealed complaint filed Tuesday in Delaware’s Court of Chancery reveals that Digital Currency Group (DCG) leaders knew of financial mismanagement and legal risks at its crypto lender unit, Genesis.
The filing shows that DCG’s CFO, Michael Kraines, prepared a “war-gaming” memo as early as 2020 to anticipate claims that Genesis was DCG’s “alter ego.”
The documents paint a picture of insiders diverting funds and misleading customers in the months before Genesis filed for bankruptcy.
Internal Memo Reveals Alter Ego Risk
In a confidential memo shared with then-Genesis CEO Michael Moro and other executives, Kraines laid out possible legal arguments creditors might use if Genesis collapsed.
He warned that plaintiffs could pierce the corporate veil, claiming Genesis was merely a puppet of DCG. Kraines asked how a total failure at Genesis could damage DCG’s board and shareholders, and suggested simulating scenarios to mitigate that risk.
Delayed Risk Controls
The complaint shows DCG hired outside consultants who flagged major shortcomings in Genesis’s risk management. Genesis’s loan book grew from about $4 billion to $12 billion, yet key controls were not put in place.
Auditors alerted DCG to “material weaknesses” in financial reporting as early as 2020, but recommendations went unheeded or were applied too late.
DCG eventually formed a “contagion” risk committee within Genesis. However, nine months passed before the first meeting took place. Kraines quipped that the delay would make his future deposition “a bit easier,” underlining the casual attitude toward critical oversight.
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Culture of Submission
Employees say DCG’s tight grip forced Genesis staff to put the parent company’s interests first. One insider described a “culture of submission,” where Genesis was propped up just long enough to let insiders extract cash.
Documents suggest that DCG treated Genesis as its own treasury, funding low-rate loans to related parties and fueling risky trades in Grayscale Bitcoin Trust (GBTC) for affiliates such as Three Arrows Capital.
Scripted Assurances to the Public
When questions arose after 3AC’s collapse, DCG drafted talking points for Genesis employees to reassure customers. These scripts claimed that Genesis’s balance sheet was strong and that normal business operations continued.
Barry Silbert, DCG’s CEO, also retweeted a Genesis post in June 2022 stating that the firm remained a key liquidity provider despite market volatility.
Alleged Fraudulent Transfers
The unsealed complaint details several suspect transactions timed to key crypto market events. It highlights a June 30, 2022, promissory note and a September 2022 round-trip deal that shifted value to insiders.
The Litigation Oversight Committee alleges these moves let DCG siphon funds at Genesis’s expense, leaving creditors with heavy losses.
The newly public emails, strategy papers and risk reviews deepen concerns about DCG’s oversight of Genesis. Plaintiffs now have clear evidence of the parent company’s role in the lender’s downfall.
As the lawsuit moves forward, creditors and investors will watch closely to see if the court agrees that Genesis was, in effect, DCG’s alter ego—and if that finding holds DCG accountable for the lender’s collapse.