According to recent reports, the crypto lending division of the Digital Currency Group (DCG), Genesis Global Capital, is the subject of an investigation by state security regulators in the United States.
According to the story that was published in Barron’s, Genesis is being investigated as part of a multi-state probe into the interconnection of cryptocurrency businesses. It has been reported that the crypto lender is being examined for its connections to retail investors, and moreover, inquiries will be made on the role of other industry players in breaches of security laws.
Joseph Borg, the director of the Alabama Securities Commission, stated that his agency and the agencies of several other states are participating in the investigations.
The investigations are generally focused on determining whether Genesis and other companies enticed residents to invest in crypto-related securities without making the proper registrations. According to Barron’s, Borg did not identify the other firms being referred to.
Since Genesis stated on November 16 that it would temporarily cease withdrawals and new loan originations, there has been a lot of attention placed on Genesis Global Capital and its lending business.
This is because of the announcement. A few days later, the lender decided to investigate all of their alternatives, including filing for bankruptcy, so they recruited a restructuring counsel from the investment firm Moelis & Company.
Genesis had spent the whole of November making hasty efforts to either get more funding or negotiate a settlement with its many debtors.
The institutional lending division of the corporation was compelled to halt redemptions as well as the initiation of new loans the previous week.
Additionally, the company has revealed in the past that its derivatives section had around 175 million dollars tied up in money in its FTX trading account.
Has Genesis filed for bankruptcy?
Genesis said on November 21 that it did not have any immediate intentions to file for bankruptcy, but the company has subsequently chosen an outside party to advise it on its current financial situation. These initiatives have not been very effective in calming the anxious clients.
The decision to halt withdrawals was a contributing factor in the downfall of numerous prior cryptocurrency exchanges in 2022, including FTX and Celsius.
If Genesis were to go out of business, it would be another devastating blow to an industry that is still hurting from the collapse of FTX, which was widely considered as one of the most successful businesses in the sector.
Genesis filing for bankruptcy is a much bigger deal than you might realize
It would be foolish to understate the significance of the consequences that may result from the possible collapse of Genesis. Even while it may not be as widely known as FTX and other exchanges, it is very necessary to the day-to-day operations of the cryptocurrency sector.
Only in 2021 did the business offer $131 billion in loans and set up $116.5 billion in transactions; the Financial Times has referred to it as the “Goldman Sachs” of the cryptocurrency industry.
Genesis takes out loans from people and organizations that hold huge numbers of coins, sometimes known as “whales,” and in exchange for the loan, the whales earn a portion of the company’s revenues. These loans are used to finance the company’s lending program.
A number of entities involved in the cryptocurrency ecosystem, including Celsius, Three Arrows Capital, Blockfi, and FTX, have been the target of legal challenges brought up by authorities from a few different jurisdictions.
All of the complaints that have been lodged with the securities authorities have a common theme in that they question whether or not cryptocurrency companies are offering unregistered securities to regular investors.