New York AG Joins the Gemini-DCG Fray
Posted by Colin Lambert. Last updated: October 20, 2023
New York Attorney General Letitia James has filed what her office calls a “sweeping lawsuit” against crypto firms Gemini Trust Company, Genesis Global Capital and its affiliates as well as Digital Currency Group, claiming they defrauded more than 230,000 investors of more than $1 billion.
The lawsuit says that an investigation by the Office of the Attorney General (OAG) found that Gemini lied to investors about an investment programme it ran with Genesis called Gemini Earn. Gemini repeatedly assured investors that investing with Genesis through the programme was a low-risk investment, however, it found that Gemini’s internal analyses of Genesis showed that the company’s financials were risky. The lawsuit alleges that Gemini knew Genesis’ loans were under-secured and at one point highly concentrated with one entity, Sam Bankman-Fried’s Alameda, but did not reveal this information to investors.
The lawsuit also charges Genesis, its former CEO Soichiro Moro, its parent company, Digital Currency Group (DCG), and DCG’s CEO Barry Silbert with defrauding investors and the public by trying to conceal more than $1.1 billion in losses, which were borne by investors. “As a result of these misleading claims and deceptions, thousands of investors lost millions of dollars and, in some instances, lost their lifesavings,” the OAG states.
The lawsuit seeks to ban Gemini, Genesis, and DCG from the financial investment industry in New York, and seeks restitution for investors and disgorgement of ill-gotten gains.
“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,” says James. “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. Instead, Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses. 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.”
The lawsuit is the latest development in a continuing soap opera involving the three firms charged. Gemini lent money to Genesis, which was then lent to Three Arrows, the hedge fund that subsequently collapsed, ultimately taking Genesis Global Capital, which was owned by DCG, with it. Gemini subsequently sued DCG, alleging that the company knew Genesis was “massively insolvent” but continued to lie to Gemini and the wider world.
The SEC has also charged Gemini and Genesis over the same programme that the two firms are squabbling about through their lawyers.
In a post on X (formerly Twitter), Gemini states, “We wholly disagree with the NY AG’s decision to also sue Gemini. Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”
DCG has also signalled it intends to fight the charges as what looked like a mess, just got messier.