A newly unsealed complaint from bankrupt crypto lender Genesis reveals that top executives at its parent company, Digital Currency Group (DCG), were aware of potential financial mismanagement and legal risks tied to their control over Genesis, according to internal communications.
Filed in the Delaware Court of Chancery, the lawsuit highlights concerns expressed by DCG’s chief financial officer, Michael Kraines, who acknowledged the danger that Genesis could be viewed as an “alter ego” of DCG.
In a confidential memo shared with then-Genesis CEO Michael Moro and others, Kraines detailed a “war-gaming exercise” that anticipated legal arguments a future plaintiff might present if Genesis collapsed. The memo, included in the complaint, outlines many of the same claims now central to the lawsuit.
“The question on my mind, simply put, is: ‘If Genesis were to somehow blow itself up, could that somehow tank DCG to the profound detriment of its board and shareholders?’” Kraines wrote, signaling that executives were bracing for a potential legal and financial crisis.
DCG disregarded warnings of potential risks
The filing also discloses that DCG brought in third-party risk consultants, whose warnings were either ignored or addressed too late. Internal records show DCG acknowledged that Genesis was “flying blind” as its loan book surged from $4 billion to $12 billion.
Additionally, external auditors had identified “significant deficiencies and material weaknesses” in Genesis’s financial controls as far back as 2020.
Genesis established a “contagion” risk committee to manage potential exposure, but the group didn’t hold its first meeting until nine months after receiving approval from the DCG board. DCG CFO Michael Kraines reportedly joked that the delay “just made my future deposition a bit easier.”
The complaint also outlines a toxic workplace culture, alleging that Genesis employees were pressured to prioritize DCG’s interests over sound governance.
One insider claimed DCG kept Genesis afloat “so [it] could pillage the balance sheet… prop [Genesis] up, give [the] impression of stability[,] then borrow while they c[ould] to get the cash out of it.” Internally, staff described the atmosphere as a “culture of submission.”
“These are not merely technical disputes over intercompany accounting,” stated the Genesis Litigation Oversight Committee. “The Delaware Complaint reveals a deliberate scheme by DCG and Barry Silbert to pillage Genesis during its collapse.”
Deceptive Practices and Questionable Dealings
The complaint also accuses DCG of public deception, alleging that Genesis employees were instructed to stick to scripted talking points following the collapse of Three Arrows Capital (3AC), while DCG executives— including CEO Barry Silbert— amplified posts on social media that downplayed the severity of the situation.
It also highlights two controversial transactions: a June 30, 2022 promissory note and a September 2022 “roundtrip” deal. Both are portrayed as efforts to obscure Genesis’s financial distress and mislead creditors.
Genesis is now seeking to recover over $3.3 billion from DCG, Barry Silbert, and other insiders.
