Genesis Lawsuit Exposes DCG’s ‘Alter Ego’ Scheme and Risk Negligence

Internal communications disclosed in the Delaware Court of Chancery show Digital Currency Group (DCG) executives were acutely aware of the legal risks tied to their control over Genesis. In a confidential memo, DCG’s CFO Michael Kraines outlined a “war-gaming exercise,” preparing for the legal arguments a future plaintiff might use if Genesis failed.

Kraines’s memo, shared with Genesis’s former CEO Michael Moro, directly questioned whether a Genesis collapse could “tank DCG to the profound detriment of its board and shareholders,” demonstrating that the company was bracing for imminent legal fallout.

Internal Warnings and Risk Controls Were Ignored

The complaint details how DCG hired third-party risk consultants who issued urgent warnings about Genesis’s ballooning loan book and weak financial controls. Despite these red flags, DCG either ignored or responded too late to the risks. Auditors had flagged “significant deficiencies and material weaknesses” in Genesis’s financial controls as early as 2020.

Meanwhile, a “contagion” risk committee formed to address systemic threats did not meet until nine months after board approval, a delay that insiders later joked about as making “future depositions a bit easier.”

Did you know?
Genesis’s collapse and subsequent lawsuits mark one of the largest legal reckonings in crypto history, with creditors still owed over $2.2 billion in cryptocurrency assets, including Bitcoin, Ethereum, and other tokens as of February 2025.

Public Deception and Sham Transactions Underscore the Scheme

The lawsuit alleges that DCG and its CEO, Barry Silbert, orchestrated a campaign of public deception as Genesis’s financial situation deteriorated. Genesis employees were instructed to recite scripted talking points after the collapse of Three Arrows Capital, while DCG executives retweeted posts downplaying the crisis.

The complaint highlights two controversial transactions: a June 2022 promissory note and a September 2022 “roundtrip” deal, both designed to conceal insolvency and mislead creditors about Genesis’s true financial health.

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Culture of Submission and Self-Dealing at Genesis

According to the unsealed documents, Genesis operated in a “culture of submission,” where employees were expected to prioritize DCG’s interests over proper governance. Internal messages described DCG as keeping Genesis alive “so [it] could pillage the balance sheet... prop [Genesis] up, give [the] impression of stability, and then borrow while they could get the cash out of it.”

The complaint accuses DCG and its insiders of using Genesis as a “corporate ATM,” funneling funds through reckless loans and hidden transfers while creditors and the public remained in the dark.

Billions in Recovery Sought as Litigation Intensifies

Genesis and its creditors are now seeking to recover more than $3.3 billion from DCG, Barry Silbert, and other insiders, alleging fraud, self-dealing, and mismanagement. The lawsuits, filed in both Delaware and New York, claim that DCG withdrew billions from Genesis even as the lender was insolvent, leaving creditors with substantial losses. The outcome of this litigation is poised to set a new precedent for accountability and governance in the crypto sector.