The US Department of Justice's Eastern District of New York (EDNY) and the Securities and Exchange Commission (SEC) are reportedly investigating Digital Currency Group (DCG) and its subsidiary Genesis over financial transfers between the two companies.
According to sources familiar with the matter, the EDNY has requested interviews and documents from both DCG and Genesis, while the SEC's investigation is said to be at a similar early stage. Neither company has been accused of any wrongdoing in relation to the inquiries, which are focused on the financial interplay between the two firms.
DCG has previously faced financial difficulties through its subsidiary Genesis Trading, which experienced major losses due to loans made to the now-collapsed hedge fund Three Arrows Capital. DCG later filed a claim for $1.2bn.
Another DCG subsidiary, Grayscale, has also encountered issues with its bitcoin trust product, with the price of a share of the trust falling below the price of bitcoin. As a result, trust in the product or investors' ability to cash out has been questioned.
In November, Genesis announced that its lending unit would suspend withdrawals, which had knock-on effects for companies such as Gemini, which relied on Genesis for its Earn platform. This led to a public feud between Gemini co-founder Cameron Winklevoss and DCG founder Barry Silbert.
Genesis has also undergone major layoffs, replacing its executive leadership and halving its headcount since August. The subsequent collapse of crypto firm FTX further damaged Genesis's finances.
Genesis has reportedly sought advisers to explore options that could potentially include a Chapter 11 bankruptcy filing. As of December, Genesis creditors had made claims totaling over $1.8bn. Neither DCG nor Genesis commented on the ongoing investigations when contacted by Bloomberg.