DCG, Top Executives Renew Push to Get New York AG’s Civil Fraud Suit Dropped

Lawyers
for
cryptocurrency
firm
Digital
Currency
Group
(DCG)
and
two
of
its
top
executives
–
CEO
and
founder
Barry
Silbert
and
Soichiro
“Michael”
Moro,
the
former
CEO
of
DCG’s
wholly-owned
trading
arm
Genesis
–
have
made
a
final
effort
to
convince
a
judge
to
toss
out
New
York
Attorney
General
(NYAG)
Letitia
James’
civil
fraud
suit
against
them.

The
court
documents
filed
last
Friday
are
the
latest
volley
in
the
legal
back-and-forth
between
NYAG
and
the
respondents,
who
–
along
with
crypto
exchange
Gemini
and
the
now-bankrupt
Genesis
–
have
been
accused
of
defrauding
investors
by
working
together
to
cover
up
a
gaping
$1
billion
hole
in
Genesis’
balance
sheet
caused
by
the
wipe-out
of
Singapore-based
crypto
hedge
fund
Three
Arrows
Capital
(3AC).

In
her
lawsuit,
James
alleged
that
Genesis
and
DCG
made
“false
assurances”
on
Twitter
that
DCG
had
absorbed
Genesis’
losses
from
3AC’s
implosion,
which
were
crafted
to
put
investors
at
ease
and
prevent
them
from
calling
in
their
open
loans.
But,
instead
of
actually
filling
the
billion-dollar
hole
with
a
cash
injection,
DCG
allegedly
just
patched
it
over
with
a
promissory
note,
pledging
to
pay
Genesis
$1.1
billion
over
ten
years
at
1%
interest.
According
to
James,
DCG
has
“never
made
a
single
payment
under
the
Note.”

Genesis
and
Gemini
have
settled
with
NYAG,
but
DCG,
Silbert
and
Moro
have
fought
the
accusations
of
fraud,
calling
the
suit
“meritless.”
Each
filed
a

motion
to
dismiss
the
case
in
March,
vehemently
denying
that
the
promissory
note
was
a
sham,
arguing
that
the
note
was
fully
vetted
and
legally
binding
and
that,
in
addition
to
the
note,
DCG
transferred
hundreds
of
millions
of
dollars
and
assets
into
Genesis
to
fill
the
hole
in
its
balance
sheet.

The
social
media
posts
about
Genesis’
“strong”
balance
sheet
weren’t
lies
meant
to
defraud,
the
lawyers
argued,
but
simply
“corporate
puffery.”

In
her
response,

James
pushed
back,
arguing
that
the
tweets
weren’t
“corporate
puffery”
but
instead
a
“misrepresentation
of
existing
facts”
purposely
crafted
to
mislead
investors
–
a
violation
of
New
York’s
strict
anti-fraud
law,
the
Martin
Act.

Her
response
to
the
motions
to
dismiss
attached
a
transcript
of
messages
sent
by
Silbert,
Moro
and
other
employees
during
a
late-night
strategy
meeting
after
3AC’s
collapse
in
June
2022.

In
the
latest
set
of
court
documents,
lawyers
for
DCG
agree
that
the
late-night
strategy
meeting
took
place,
but
argue
that
it’s
not
evidence
of
any
conspiracy:
instead,
they
say,
those
communications
are
evidence
of
the
company’s
“lawful,
good-faith
efforts…to
support
a
subsidiary.”

“DCG
did
what
a
responsible
parent
company
should
do,
offering
advice,
providing
financial
support,
and,
in
certain
instances,
reviewing
and
commenting
on
Genesis’s
communications,”
DCG’s
lawyers
wrote.

In
a
June
28,
2022
email
attached
to
Silbert’s
filing,
Silbert
wrote
to
Moro
and
other
employees:

“It
is
certainly
our
hope
and
intention
to
help
Genesis
address
the
equity
hole
—
hopefully
by
6/30.
To
that
end,
the
Genesis
team
should
be
working
24/7
with
the
DCG
and
DCGI
teams
to
figure
out
all
possible
ways
to
do
so…There
are
probably
lots
of
different
ways
to
do
so,
each
with
their
own
ramifications
that
we
just
need
to
all
understand
before
we
start
moving
assets
around.”

The
email,
Silbert’s
lawyers
argue,
demonstrates
that
efforts
to
fill
the
billion-dollar
hole
were
genuine.

DCG’s
lawyers
restated
their
claim
that
the
promissory
note
at
the
heart
of
the
case
was
an
“entirely
proper
financial
transaction…[and]
one
of
the
most
valuable
assets
in
the
Genesis
estate,
one
that
will
provide
an
enormous
benefit
to
Genesis’
creditors
far
beyond
what
they
would
have
received
had
DCG
not
acted
so
supportively
without
any
obligation
to
do
so.”

The
promissory
note,
DCG’s
lawyers
say,
allowed
Genesis
to
weather
the
storm
caused
by
3AC’s
collapse
–
it
wasn’t
until
FTX
imploded
that
Genesis
was
forced
to
halt
withdrawals.

Lawyers
for
Silbert
similarly
agreed
that
he
“discussed
ways
to
support
Genesis
in
the
wake
of
the
3AC
default,
and
ultimately
signed
the
Promissory
Note
in
order
to
do
so”
but
denied
that
there
was
anything
fraudulent
about
his
actions.

The
fact
that
Silbert
ultimately
signed
the
promissory
note,
his
lawyers
say,
was
evidence
of
his
good
faith
and
continued
belief
in
Genesis’
viability
despite
its
financial
woes.