The New York Attorney General’s office lodged a suit against Winklevoss-owned crypto exchange Gemini, cryptocurrency lending company Genesis, and crypto investment firm DCG earlier today.
The suit also includes allegations against Soichiro Michael Moro, the former CEO of Genesis, and Barry E. Silbert, the founder and CEO of DCG.
New York AG’s Lawsuit
New York Attorney General Letitia James has dropped the hammer on crypto companies Gemini Trust, Genesis Global Capital, and Digital Currency Group (DCG).
The NYAG complaint alleges that the three entities defrauded 232,000 investors, including at least 29,000 New York citizens, for over $1 billion.
This was allegedly conducted through “two distinct fraudulent schemes,” labeled throughout the suit as the “Gemini Scheme” and the “DCG Scheme.”
The Gemini Scheme, the complaint notes, saw Gemini lie to investors about its Gemini Earn investment program, which it ran in partnership with Genesis. It claims that, while Gemini had assured investors that the program was a low-risk investment, probes indicate that Genesis’ financials “were risky”:
“The lawsuit alleges that Gemini knew Genesis’ loans were undersecured and at one point highly concentrated with one entity, Sam Bankman-Fried’s Alameda, but did not reveal this information to investors.”
Gemini and Genesis “falsely claimed” they had the requisite licenses from the government when, in fact, they should have registered under New York securities laws, the complaint continued.
Genesis filed for Chapter 11 bankruptcy protection in January. Gemini took legal action against DCG and Silbert in July, making claims that DCG called “defamatory” and a “publicity stunt.”
Covering Up The $1.1 Billion Hole
The DCG Scheme allegedly defrauded earn customers after Genesis sought to conceal a “structural hole” at Genesis Capital of over $1.1 billion in losses after being pummeled by the implosion of Singapore-based hedge fund Three Arrows Capital. Genesis, along with its former CEO Soichiro Moro, parent firm DCG and its CEO, Barry Silbert, then allegedly misrepresented Genesis’ financial state.
They disguised the losses through “a months-long campaign of misstatements, omissions, and concealment” by way of a promissory note, according to the complaint.
James’ lawsuit alleges that the CFO of Genesis told employees not to disclose the promissory note to Gemini, and that the firm hid information that would have revealed the note or the heavy losses. Silbert notably permitted Genesis on October 28, 2022, to disclose the promissory note to Gemini just two weeks before the company suspended withdrawals.
NYAG’s Tough Stance On Crypto Regulation
The NY Attorney General seeks to prohibit Gemini, Genesis, DCG, and their executives from operating in the financial investment industry in New York. She is also seeking restitution for defrauded investors and the return of ill-gotten gains.
A statement from Attorney General James emphasized the losses incurred by “middle-class investors”:
“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. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” said James.
Genesis and Gemini were slapped with a suit from the U.S. Securities and Exchange Commission in January for allegedly offering unregistered securities via the Earn program.
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