NY Attorney General Files Lawsuit Against Gemini, Genesis, and DCG for Alleged Billion-Dollar Fraud

In a significant legal development, New York Attorney General Letitia James has filed a lawsuit against cryptocurrency companies Gemini Trust, Genesis Global Capital, and Digital Currency Group (DCG), accusing them of defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of over $1 billion. The lawsuit seeks to ban these firms from the financial investment industry in New York, and it has sent shockwaves through the cryptocurrency world.

Gemini, Genesis, and DCG are at the center of this financial scandal, which has severely impacted a substantial number of investors. Attorney General James revealed that Gemini had misled investors about an investment program known as Gemini Earn, which was conducted in collaboration with Genesis. The lawsuit alleges that Gemini falsely assured investors that their involvement in Gemini Earn was a low-risk endeavor, despite having internal evidence suggesting that the financial situation of Genesis was precarious.

One of the key accusations in the lawsuit is that Gemini knew Genesis’ loans were undersecured and highly concentrated with a single entity, Alameda Research, owned by Sam Bankman-Fried. However, this crucial information was not disclosed to investors, resulting in devastating financial losses for many.

Furthermore, Genesis, its former CEO Soichiro Moro, its parent company DCG, and DCG’s CEO Barry Silbert are charged with concealing losses exceeding $1.1 billion from investors and the public. The losses were the result of the bankruptcy of trading firms, Three Arrows Capital and Alameda Research, to which Genesis had lent funds. This alarming revelation shocked investors and left many with substantial financial losses, and, in some cases, even their life savings.

The impact of this fraud on investors is significant. Approximately 230,000 investors, including 29,000 New Yorkers, collectively suffered losses of around $1 billion. In a poignant example of the human toll, a retired 73-year-old grandmother invested her and her husband’s life savings of over $199,000 in Gemini Earn, hoping to support her grandchild’s education. Tragically, she lost it all due to this deception. Another New Yorker, a 56-year-old investor, lost nearly all his savings of approximately $20,500, believing that Gemini Earn was a secure choice.

Gemini, a New York-based digital asset platform, launched the Gemini Earn program in February 2021, in partnership with Genesis. Investors were promised profits from lending assets to third parties, but Attorney General James discovered that the internal risk analyses showed the program was far riskier than advertised. Gemini even downgraded Genesis’ credit rating from investment grade to junk grade in early 2022 but failed to disclose this to investors.

The lawsuit reveals that Gemini’s board members discussed ending the Gemini Earn program due to risks associated with Genesis and even likened Genesis’ financial condition to Lehman Brothers before its collapse. Despite these concerns, Gemini did not warn its investors about these potential risks.

Genesis, on the other hand, is accused of failing to adequately audit one of its largest borrowers, Three Arrows Capital, and lying to Gemini about regularly reviewing borrowers’ financial statements. To conceal the losses, Genesis and DCG entered into a $1.1 billion promissory note, a move alleged to be part of a scheme to defraud investors and the public about Genesis’ financial condition.

The lawsuit underscores the urgent need for greater regulation and oversight in the cryptocurrency industry to protect investors from fraudulent activities. Attorney General James has been proactive in this regard, with various actions taken against crypto-related entities that have engaged in misconduct or fraud.

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