DCG says it was ‘blind sided’ by NYAG suit in third quarter shareholder letter

The crypto conglomerate Digital Currency Group today published its financial results for the third quarter to shareholders, providing an overview of the financial performance of its various businesses and an update on the fraud lawsuit initiated by the New York Attorney General against its now-defunct subsidiary, Genesis.

The company founded by Barry Silbert disclosed consolidated revenues of $188 million, primarily attributed to its asset management unit, Grayscale. This update marks the first since the trading firm Genesis announced the cessation of its operations and the NYAG’s allegations of investor fraud. Q3 EBITDA came in at $69 million.

The update began with a personal update from Silbert, who shared that his nine-year-old daughter has been battling a cancer diagnosis.

“In August, Barry and his wife learned that their 9-year old daughter has a rare form of pediatric bone cancer,” the letter reads. “Barry’s primary focus over the past two months has been to support his family and ensure his daughter is getting the best medical care possible.”

NYAG’s lawsuit

A source familiar with Silbert’s personal situation told The Block that his daughter’s condition resulted in him receiving an extension on an interview with NYAG for its investigation, but that NYAG then went through with its suit without the interview. The firm has been cooperating with the NYAG and claims it was blindsided by the suit, which was filed earlier this month.

The core of the NYAG’s case revolves around DCG’s participation in Gemini’s Earn program, which was administered by Gemini but had its funds managed by Genesis. New York prosecutors allege that DCG and Gemini lied to investors and withheld information from creditors, noting specifically that its investigation found “Gemini’s internal analyses of Genesis showed that the company’s financials were risky.”

The lawsuit also charges former Genesis CEO Michael Moro and Silbert with “defrauding investors and the public by trying to conceal more than $1.1 billion in losses, which were borne by investors.”

In its third quarter update, DCG said that the civil suit “blind sided” the company, adding that there is “no evidence of wrongdoing by DCG, Barry Silbert, or our employees.”

“Attorney General Letitia James is an elected official who has publicly tasked her office with going after crypto companies in New York State, and she has previously made overly broad allegations about our entire industry in press releases,” DCG said.

DCG also provided an update on its negotiations with Genesis’s creditors, with whom the company has reached a preliminary agreement. This deal has the potential to eventually fully repay the creditors over an extended period. To date, the firm has disbursed $225 million to Genesis, resulting in a total debt payment of around $575 million since the end of 2022.

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