State securities regulators are investigating Genesis Global Capital as part of a wide-ranging inquiry into the interconnectedness of crypto firms, Genesis’s connection to retail investors, and whether it or other industry participants might have violated securities laws.
Alabama Securities Commission Director Joseph Borg said his agency and those of several other states are part of the inquiries, which generally focus on whether Genesis and other companies enticed residents to invest in crypto-related securities without making the proper registrations. Borg declined to name the other companies.
Genesis had no immediate comment.
Genesis, which is a subsidiary of Stamford, Conn.-based Digital Currency Group, is a big institutional lender to crypto companies. On Nov. 16, Genesis said it would halt client withdrawals, citing the “unprecedented market turmoil” caused by the failure of exchange FTX and “abnormal withdrawal requests which have exceeded our current liquidity.”
In a letter to investors this week, DCG CEO Barry Silbert said there was a “liquidity and duration mismatch in the Genesis loan book.” The letter said Genesis had hired advisors and is exploring “all possible options.”
Genesis’s customers are typically institutions, but retail investors are affected by its health. Shortly after Genesis announced its withdrawal pause, Gemini Trust Co., the exchange founded by the Winklevoss twins, said it would stop withdrawals from accounts that allow retail investors to earn yield on crypto deposits. Genesis is Gemini’s partner for those accounts.
“If a firm that serves institutions fails, it’s going to affect retail folks,” Borg said. He added that “the interdependencies and interlocking connections in the crypto space seem to be more complex” than those he encountered in the 2008-2009 financial crisis.
Securities regulators in Alabama, Texas, New Jersey, and several other states for more than a year have launched probes and brought enforcement actions against crypto firms that they say are selling securities to residents without the proper approvals. The subjects of the investigations have included bankrupt crypto lenders Celsius Network and
as well as BlockFi, which in February agreed to pay $100 million to the states and the Securities and Exchange Commission as part of a settlement.
The new queries are in response to the fallout from the bankruptcy of FTX and subsequent disruptions at other firms, Borg said.
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