Key Takeaways




The regulators are probing whether Genesis persuaded residents of their states to invest in crypto securities without acquiring any mandated registrations. 



Genesis had revealed that its derivatives unit had $175 million in locked funds in its FTX trading account.




Several U.S. state regulators are probing whether troubled crypto trading company Genesis Global Capital may have violated securities laws or not. As per the latest media reports , the Alabama Securities Commission Director Joseph Borg stated that his agency, along with other US state regulators, are probing Genesis looking into whether the firm persuaded residents of their states to invest in crypto securities without acquiring any mandated registrations. 



Further commenting on FTX collapse, Borg stated the interdependencies and interlocking connections in the crypto space as a major concern due to contagion risk when a huge crypto market player like FTX collapses.



Earlier this month, Genesis acknowledged its exposure to the now-bankrupt FTX. Genesis revealed that its derivatives unit had around $175 million in locked funds in its FTX trading account. Digital Currency Group Genesis’s parent company provided the broker with around $144 million in equity to help raise funds and navigate its liquidity issues.



Earlier this week, DCG founder and CEO Barry Silbert revealed that the firm had approximately $575 million liability to Genesis Global Capital, which is due in May 2023. Following exposure to FTX, Genesis was forced to suspend withdrawals from its lending arm, citing “unprecedented market turmoil.”




As part of our goal in providing transparency around this week’s market events, the Genesis derivatives business currently has ~$175M in locked funds in our FTX trading account. This does not impact our market-making activities. — Genesis (@GenesisTrading) November 10, 2022




Earlier this week, Genesis confirmed it had hired leading investment bank Moelis & Co. to explore how to navigate its way through a potential bankruptcy crisis and address clients’ needs. 



“We’ve begun discussions with potential investors and our largest creditors and borrowers, including Gemini and DCG,” the crypto firm’s interim Chief Executive Officer Derar Islim said in a memo sent to Genesis customers.



Genesis is finding it extremely difficult to raise fresh cash for its lending unit and has also warned investors that it may need to file for bankruptcy if it does not find fresh funding soon. As per media reports, Genesis was also in talks with crypto exchange Binance for a potential investment, but funding is yet to be materialized.