A newly unsealed complaint from bankrupt crypto lender Genesis reveals internal communications at its parent company, Digital Currency Group (DCG), suggested executives were aware of financial mismanagement and looming legal risks tied to their control over Genesis.

According to the Delaware Court of Chancery filing, DCG’s chief financial officer, Michael Kraines, acknowledged the risk that Genesis could be deemed DCG’s “alter ego.”

In a confidential memo shared with former Genesis CEO Michael Moro and others, Kraines laid out a “war-gaming exercise” preparing for legal arguments a future plaintiff might raise if Genesis collapsed. The memo, attached to the complaint, mirrors 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?’ My prefatory thinking here is as follows,” Kraines wrote to Moro, indicating they were preparing for an imminent legal fallout.

DCG ignored risk warnings

The filing further reveals that DCG hired third-party risk consultants who issued warnings that were either ignored or acted upon too late. Internal documents show DCG admitted Genesis was “flying blind” as its loan book ballooned from $4 billion to $12 billion.

External auditors had already flagged “significant deficiencies and material weaknesses” in Genesis’s financial controls as early as 2020.

A so-called “contagion” risk committee was formed within Genesis to mitigate exposure. However, its first meeting did not occur until nine months after approval by the DCG board. Kraines reportedly joked that the delay “just made my future deposition a bit easier.”

The complaint also describes a toxic workplace culture where Genesis employees were expected to serve DCG’s interests at the expense of proper governance.