NY Attorney General Sues Gemini, Genesis, and DCG for Alleged Billion-Dollar Fraud

The New York Attorney General Letitia James has initiated a lawsuit against Gemini Trust Company, Genesis Global Capital, LLC, and Digital Currency Group, Inc. (DCG), alleging a fraudulent scheme that cost over 230,000 investors more than $1 billion.

The Attorney General said: "These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result. Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn."

Alleged Deceptive Practices

According to James, Gemini misled investors about the safety of its partnership with Genesis, while Genesis and DCG attempted to conceal huge losses, ultimately leading to substantial financial harm to thousands of investors.

Gemini Earn was a program aimed at generating profits for investors by lending assets to third parties and returning a portion of those profits. Investors were assured that their money was safe, but an investigation by the Attorney General uncovered a different reality.

"Gemini hid the risks of investing with Genesis, and Genesis lied to the public about its losses," she said. "This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry. My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors."

I'm suing cryptocurrency companies @Gemini, @GenesisTrading, and @DCGco for defrauding 230,000 investors out of more than $1 billion. This is yet another example of the harms of an unregulated crypto industry.https://t.co/ysLVm8nujr

The former CEO of Genesis, Soichiro Moro; the CEO of DCG, CEO Barry Silbert; Genesis and DCG are all accused of concealing over $1.1 billion in losses, which were ultimately endured by investors. In June 2022, one of Genesis' major borrowers, Three Arrows Capital (3AC), defaulted on substantial loans, leading to massive losses.

Additionally, Genesis lost over $100 million from another borrower, Babel Finance. The lawsuit indicated that Genesis failed to properly audit 3AC and misled Gemini by claiming regular financial statement reviews that hadn't occurred in over two years. To conceal these losses, DCG and Genesis entered into a promissory note of $1.1 billion.

NYAG's Lawsuit Adds to Legal Challenges Facing Gemini and Genesis

In January, the US Securities and Exchange Commission (SEC) sued Genesis and Gemini, accusing them of offering and selling crypto lending products without proper registration, thus violating securities regulations. The SEC's action to charge these companies was in response to their involvement in the Gemini Earn program, which the regulator claims qualified as unregistered securities.

Meanwhile, Gemini sued DCG and Barry Silbert in July for their alleged role in facilitating Genesis' fraud against the exchange. The lawsuit, filed in a New York court, accuses both parties of encouraging and facilitating the fraudulent activities of Genesis, Finance Magnatesreported.

Gemini's complaint seeks to recover damages and losses incurred due to Barry Silbert's alleged false and incomplete representations. Specifically, Gemini accuses Silbert of falsely claiming that DCG had absorbed $1.1 billion in losses, which Genesis had incurred due to its exposure to 3AC.