Digital Currency Group faced a lawsuit for securities fraud and unregistered security offerings via their lending subsidiary, leading to a bankruptcy filing.
Silver Golub & Teitell (SGT) has filed a securities class action lawsuit against Digital Currency Group (DCG) and its founder, Barry Silbert.
They are accusing the company and Silbert of breaking federal securities laws. The charges took place in the United States District Court for the District of Connecticut.
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The lawsuit is filed on behalf of two classes of individuals and entities who loaned digital assets to DCG's wholly-owned subsidiary, Genesis Global Capital. This happened during the period from Feb 2, 2021, through Nov 16, 2022.
On Nov 16, 2022, Genesis Global Capital announced that it would no longer honor redemption requests from lenders. This was due to what the company called "an issue of liquidity and duration mismatch in the Genesis loan book."
On January 19, 2023, Genesis and two related entities filed for bankruptcy protection.
The lawsuit seeks to hold DCG and Silbert liable as "Control Person(s)" under federal securities laws.
The complaint also alleges that Genesis engaged in unregistered security offerings in violation of the Securities Act. This includes executing lending agreements that fit the definition of securities without qualifying for an exemption from registration under federal securities laws.
According to multiple sources, SGT Lawyers stated:
The scheme to defraud was carried out, according to the complaint, in order to induce prospective digital asset lenders to loan digital assets to Genesis Global Capital and to prevent existing lenders from redeeming their digital assets.
Additionally, the complaint also alleges that Genesis Global committed securities fraud by making false and misleading statements.
According to the legal document, the statements induced future digital asset lenders to loan digital assets and prevented existing lenders from redeeming their digital assets.
It's worth noting that previously, DCG refused to be involved in Genesis' bankruptcy filing.