Cryptocurrency Companies Sued Over Alleged $1.1B In Fraud

LONDON, ENGLAND - OCTOBER 23:  A visual representation of the digital Cryptocurrency, Bitcoin on October 23, 2017 in London, England. Cryptocurrencies including Bitcoin, Ethereum, and Lightcoin have seen unprecedented growth in 2017, despite remaining extremely volatile. While digital currencies across the board have divided opinion between financial institutions, and now have a market cap of around 175 Billion USD, the crypto sector coninues to grow, as it sees wider mainstreem adoption.  (Photo by Dan Kitwood/Getty Images)
(Photo by Dan Kitwood/Getty Images)

OAN’s Stephanie Stahl
5:30 PM – Thursday, October 19, 2023

New York state prosecutors have filed a lawsuit against three cryptocurrency firms, alleging that the companies engaged in fraudulent activities that resulted in more than 230,000 investors losing a collective $1.1 billion. 


On Thursday, New York Attorney General Letita James filed the lawsuit against Crypto firms Genesis Global, its parent company Digital Currency Group (DCG), and Gemini. The lawsuit points to a series of errors, including inadequate risk management concerning their exposure to FTX, the bankrupt trading firm led by Sam Bankman-Fried. 

Prosecutors allege that Digital Currency Group as well as its subsidiaries and affiliates lied to investors, created fraudulent financial documents, and withheld information from creditors. 

The lawsuit revolves around a program called Gemini Earn, which was advertised to customers as a safe way to earn up to 8% interest on cryptocurrency holdings.

In this program, the cryptocurrency assets from Gemini customers were combined and loaned to a crypto lender named Genesis. Genesis, in turn, lent these assets to large institutions and shared a portion of the profits.

These crypto services were presented to the public as an improved alternative to traditional bank savings accounts. However, Attorney General James alleges that the Gemini Earn program was much riskier than what was portrayed in its marketing.

The lawsuit claims that Gemini knew from the beginning that the loans made by Genesis were extremely high-risk and concentrated among a small number of third parties, specifically Alameda Research, a sibling company of FTX.

If any of Genesis’s major borrowers were to default on their loans, Gemini customers could lose their invested funds. When Genesis faced financial troubles due to the FTX situation in November 2022 and subsequently filed for bankruptcy two months later, Gemini Earn customers lost access to approximately $900 million of their money.

In January, Gemini and Genesis were also already sued by the Securities and Exchange Commission over the Gemini Earn program, which the regulator claimed constituted an unregistered securities offering. However, the charges brought by the New York attorney general are more extensive.

The attorney general alleges that Gemini did not adequately inform its customers about the risks involved, while Genesis and DCG (Digital Currency Group) failed to evaluate the quality of the loans they issued. 

Furthermore, it is alleged that they attempted to hide the losses incurred in mid-2022 when hedge fund Three Arrows Capital and another smaller party defaulted on loans totaling $1.1 billion. 

Both DCG CEO Barry Silbert and Genesis CEO Michael Moro, who are named in the case as defendants, are accused of making misleading public statements about Genesis’s financial condition.

In a post on X, formerly known as Twitter, Gemini said it “looks forward to defending ourselves” against the lawsuit.

Through the lawsuit, Attorney General James will be seeking restitution for investors and “disgorgement of ill-gotten gains,” along with a ban that would prevent all the three cryptocurrency firms from conducting business in the financial investment industry in New York.

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