US States Open Investigation Into Genesis For Potential Securities Violation

Barron’s reports that Genesis Global Capital is being investigated by the Alabama Securities Commission as well as other states.

“Several other states” are involved in the probe, according to Alabama Securities Commission Director Joseph Borg, who did not name them.

The alleged crime toward Genesis

A report revealed that the investigation focused on whether Genesis and other companies had persuaded residents to invest in crypto securities without being properly registered.

FTX’s collapse raises concerns about contagion risk due to its interdependence and interlocking connections in the crypto space.

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FTX’s collapse forced Genesis to suspend customer redemptions and loan originations on November 16, citing “abnormal withdrawal requests”.

Since Genesis paused withdrawals, Gemini had to warn customers of delays on its Earn accounts, which are operated in partnership with Genesis.

Genesis at the risk of bankruptcy

It has been reported that Genesis Global Capital has hired a restructuring adviser to investigate all options, including bankruptcy.

A New York Times report on Nov. 22 states that Moelis & Company has been hired to explore options for the company, however, people familiar with the situation stressed that no financial decisions have been made and that the company can still avoid filing for bankruptcy.

“We have no plans to file bankruptcy imminently. Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors,” said spokesperson from Genesis. 

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As an interesting side note, Moelis & Company was also asked to explore “strategic alternatives” after Voyager Digital suspended withdrawals and deposits on July 1.

Several days later, Voyager Digital filed for Chapter 11 bankruptcy in the Southern District of New York, aiming to eventually “return value” to its customers.

As a result of “unprecedented market turmoil” and the collapse of crypto exchange FTX, Genesis is seeking investors to cover a shortfall of $500 million to $1 billion.

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Jamilatul Mahmudah

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