New York Attorney General Letitia James has filed a lawsuit against three cryptocurrency companies including Stamford-headquartered Digital Currency Group Inc. (DGC) that alleges the companies – along with DCG CEO Barry Silbert – defrauded 230,000 investors of more than $1 billion.
The lawsuit is also aimed at Gemini Trust Co., founded by the investors Cameron and Tyler Winklevoss, and Genesis Global Capital LLC (a DCG subsidiary) and its affiliates. According to James’ office, Gemini lied to investors about an investment program it ran with Genesis called Gemini Earn when it claimed their Gemini Earn program was a low-risk investment. 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.
In June 2022, one of Genesis’ largest borrowers, Three Arrows Capital, defaulted on billions in loans. Around the same time, Genesis lost more than $100 million from another borrower, Babel Finance. In total, Genesis had lost more than $1.1 billion.
The lawsuit stated that that Genesis failed to adequately audit its borrower, Three Arrows Capital, and lied to Gemini when it claimed to regularly review its borrowers’ financial statements. The lawsuit also claimed that Genesis, DCG, and their executives tried to conceal Genesis’ true financial condition from Gemini, Gemini Earn investors, and the public by entering into a $1.1 billion promissory note, in which DCG agreed to pay Genesis $1.1 billion in a decade at only a 1% interest rate. The lawsuit states that the promissory note was part of a scheme to defraud Gemini Earn investors and the public about Genesis’ financial condition and its ability to operate its business.
Through this lawsuit, James 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,” said 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.”
