New York Attorney General Letitia James filed a lawsuit against cryptocurrency firms Gemini Trust Company, Genesis Global Capital, and Digital Currency Group Thursday for allegedly defrauding more than 230,000 investors out of $1.1 billion.
James alleges that crypto exchange Gemini lied to investors of its Gemini Earn program, co-lead with crypto lender Genesis, when it told them that they were making a low-risk investment.
“[The] OAG’s investigation found that Gemini’s internal analyses of Genesis showed that the company’s financials were risky,” according to a press release. “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.”
Bankman-Fried is currently in court in New York, on trial for allegedly stealing funds from the customers of his FTX crypto exchange to fill balance sheet holes at his hedge fund Alameda Research. Alameda was at one point the borrower for almost 60% of outstanding loans from Genesis to third parties, the OAG alleges.
Also charged in the suit are Genesis, its former chief executive Soichiro Moro, its parent company DCG, and DCG’s CEO Barry Silbert, who James accuses of defrauding investors and the public by trying to conceal losses greater than $1.1 billion.
These losses, James said, caused individual investors to lose millions of dollars – and in some cases, their life savings. She seeks restitution for investors; disgorgement of all ill-gotten gains; and lifetime bans on Gemini, Genesis, and DCG from participating in the financial investment industry in New York.
“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,” James said.
“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,” she said.
One investor, the OAG said, was a retired grandmother who invested her life savings of nearly $200,000 in Gemini Earn in hopes to pay for her grandchild’s education. Another was a 56-year-old New Yorker who invested almost all of his savings – $20,500 – in Gemini Earn. In both cases, all was lost, the OAG said.
In response to the lawsuit, Gemini tweeted that the suit – against all but them – “confirms what we’ve been saying all along — that Gemini, Earn users, and other creditors were the victims of a massive fraud and systematically ‘lied to’ by these parties about ‘Genesis’s financial condition.’”
“With that said, 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,” Gemini tweeted.
Genesis and DCG haven’t made public comments on the lawsuit, and could not immediately be reached for comment.
James has come down hard on the crypto world this year, suing ex-Celsius CEO Alex Mashinsky for allegedly defrauding investors, bankrupt crypto exchange Voyager Digital for illegally serving New Yorkers, and KuCoin for failing to register as a security in New York.
In May, she proposed the Crypto Regulation, Protection, Transparency, and Oversight Act, a state law to tighten regulations in the crypto sector, which at the time she said was marked by “rampant fraud and dysfunction” and in need of “law and order.”
