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US regulators to investigate Genesis and other crypto firms

Cryptocurrency lending firm Genesis Global Capital and other crypto firms are under investigation by U.S. securities regulators, according to reports on Nov. 25.

Joseph Borg, director of the Alabama Securities Commission, confirmed that the state and several other states are participating in investigations into Genesis’ alleged ties to retail investors, including whether Genesis and other crypto firms may have violated securities laws, Barron’s reported. It is still unclear which other companies are being investigated.

Borg noted that the investigation focuses on whether Genesis and other crypto companies influenced investors in crypto-related securities without obtaining proper registration.

The investigation is another chapter in the Genesis saga since the company revealed it had about $1[ads1]75 million in funds in an FTX trading account. On November 16, Genesis announced that it had temporarily suspended withdrawals, citing “unprecedented market turmoil” following FTX’s November 11 collapse.

The firm is reportedly having problems raising money for the lending unit. However, Genesis has denied speculation of its “imminent” bankruptcy due to a $1 billion deficit. On November 22, the company told Cointelegraph:

“We have no plans to go bankrupt immediately. Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive discussions with creditors.”

Genesis has hired restructuring advisors to explore all possible options, which include, but are not limited to, a potential bankruptcy, as reported by Cointelegraph on November 23. Moelis & Company, an investment bank, has been hired by the firm to explore options, while people familiar with the situation stressed that no financial decisions have been made and that the company may still avoid bankruptcy.

Genesis has been in the spotlight due to concerns about contagion in the industry as a result of FTX’s bankruptcy along with its sister company, Grayscale Investments, and their parent company, Digital Currency Group.

A tweet from Grayscale on Nov. 18 assured investors that all digital assets underlying Grayscale’s digital asset products are stored in Coinbase’s custody, citing a letter from Coinbase CFO Alesia Haas and Coinbase Custody CEO Aaron Schnarch.

Cointelegraph reached out to Genesis Global Capital but did not receive a response by the time of publication.

Update (Nov 26 at 01:00 UTC): This article has been updated to clarify that Aaron Schnarch is the CEO of Coinbase Custody, not Coinbase.

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