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  • The lawsuit was the culmination of an investigation by the Office of the Attorney General.
  • The firms are being sued for defrauding over 230,000 investors of more than $1 billion.

New York Attorney General Letitia James filed a comprehensive lawsuit against various crypto firms for defrauding over 230,000 investors of more than $1 billion. These included Gemini Trust Company (Gemini), Genesis Global Capital, LLC and its affiliates (Genesis), and Digital Currency Group, Inc. (DCG).

The lawsuit was the culmination of an investigation by the Office of the Attorney General (OAG). A series of fraudulent activities were unveiled. Gemini, in collaboration with Genesis, promoted an investment program called Gemini Earn. Thus, assuring investors of its low-risk nature.

Nevertheless, the OAG’s inquiry revealed that Gemini knew Genesis’ financials were risky but concealed this information from investors. Furthermore, the lawsuit charged Genesis, its former CEO Soichiro Moro, its parent company DCG, and DCG’s CEO Barry Silbert with attempting to hide more than $1.1 billion in losses from investors and the public.

Gemini, Genesis, and DCG accused of concealing losses in sweeping legal action

In response to these fraudulent activities, Attorney General James sought to ban Gemini, Genesis, and DCG from the financial investment industry in New York. The lawsuit aimed to secure restitution for the defrauded investors. It also seeks to disgorge the ill-gotten gains acquired through these deceptive practices.

The case revolved around Gemini and its Gemini Earn program, launched in February 2021, in partnership with Genesis. This program aimed to generate profits by lending assets to third parties and returning a portion of these profits to investors. Despite claims of rigorous vetting and risk management, Gemini’s internal risk analyses indicated that Genesis’ loans were risky. Gemini failed to provide meaningful warnings to investors or downgrade its marketing of Earn as a low-risk investment.

The lawsuit additionally accused Genesis of concealing more than $1.1 billion in losses, with multiple borrowers defaulting on substantial loans. Genesis’ failure to conduct proper audits of borrowers, like Three Arrows Capital, contributed to the losses. Furthermore, the lawsuit revealed that Genesis hadn’t received audited financial statements from Three Arrows Capital for over two years.

To conceal the losses, Genesis, DCG, and their executives entered into a $1.1 billion promissory note. DCG committed to paying Genesis $1.1 billion in a decade at a mere one percent interest rate. This move aimed to deceive Gemini Earn investors and the public regarding Genesis’ financial health.

The lawsuit highlighted that Genesis and DCG had knowingly presented false information to the public and Gemini, even comparing the financial condition of Three Arrows Capital to that of Lehman Brothers before its collapse. Despite the losses, misleading public statements were made, and Genesis’ executives lied to Gemini about the financial condition of the company.

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