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The New York judge overseeing the U.S. Securities and Exchange Commission’s (SEC) case against Terraform Labs has ordered bankrupt digital asset lender Genesis to comply with a subpoena after it failed to hand over certain documents to the SEC in connection with the case.

The SEC served Genesis and its sister entities with the subpoena on September 12, requiring a response by October 9. None came.

Genesis now has five days from the date of the order to comply by handing over the requested documents, creating a deadline of October 18.

The exact scope of the subpoena, including the precise documents being requested, is unclear. It was made in connection with the SEC’s case against Terraform Labs and founder Do Kwon, both of which are accused of orchestrating a multi-billion dollar digital asset securities fraud involving its algorithmic stablecoin, Terra USD.

Still, Genesis and its parent company, Digital Currency Group (which is the company ultimately in charge of the Grayscale Bitcoin Trust (GBTC) and is itself owned by Barry Silbert), are connected throughout the digital asset industry and have been implicated in many of its most prominent scandals—so whatever the SEC is after from Genesis is likely to be revealing to one degree or another.

For instance, when Three Arrows Capital (3AC) went broke in July 2022 and sent the digital asset industry into a tailspin from which it hasn’t fully recovered, it emerged that 3AC and DCG had been colluding to exploit the price of GBTC, then trading at a premium to net asset value (NAV). 3AC would borrow BTC from Genesis, which would then be sent back to Genesis to create GBTC shares. 3AC then uses the GBTC shares as collateral to take USD loans from Genesis, which would be worth more than the BTC it initially borrowed as long as GBTC remained about NAV. Should GBTC slip below NAV, however, 3AC is doubly screwed.

Of course, that’s exactly what happened, but here comes one potential connection between Genesis and Terraform: the spectacular collapse of Terra-Luna sent the market—including GBTC—careening, which sealed the fate of 3AC.

Further, 3AC is on record as having invested at least $500 million into Terra, which went up in smoke with the Terra crash. Given that DCG’s Genesis lent billions to 3AC (at the time of 3AC’s collapse, Genesis was apparently owed $1.2 billion—something DCG is still trying to get on top of), it’s fairly easy to draw a line from Genesis almost directly to Do Kwon and Terraform Labs.

If one were to guess, the SEC is highly interested in the connection between the billions poured into 3AC by Genesis and the fraud allegedly perpetrated by Do Kwon and Terraform Labs. That being said, given that DCG’s tendrils extend throughout the industry, one never knows what other pertinent information might come tumbling out of Genesis when forced to comply with the SEC’s subpoena.

The timing is also curious: It was reported in September that the Federal Bureau of Investigation (FBI) was interviewing former Genesis counterparty Cameron Winklevoss in connection with misrepresentations Silbert had made regarding the financial health of Genesis. Reports also surfaced earlier in the year that both the SEC and the Department of Justice (DoJ) had open investigations against DCG, apparently over transfers between itself and the lender subsidiary.

Where there’s scandal, DCG is never far behind

The public was first put on notice regarding a pending Genesis collapse when the platform suspended all withdrawals in November of 2022. Like many, Genesis had apparently been hit by an industry-wide liquidity crisis thanks to the FTX meltdown, and in January of this year, it formally declared bankruptcy. According to an FT report, at the time of its Chapter 11 filing, Genesis owed creditors over $3 billion.

As for Genesis, owner of Digital Currency Group, the fact that the disgraced exchange
refuses to stay out of the news is surely inconvenient. DCG also happens to own Grayscale, which is currently trying—and so far failing—to convince the SEC that there is enough investor protection in the BTC market to allow a BTC exchange-traded product (ETP). Recently, a court ordered the SEC to review its decision to decline the ETP application, but as that denial came well before the Genesis collapse (as well as many other industry scandals), it seems that the SEC’s calculus is just as likely to have shifted further away from an approval as it is to have moved closer towards one.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of group—from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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