Gemini, Genesis, DCG Sued by New York AG for Allegedly Defrauding Investors; All You Need To Know About The $1 Billion Crypto Fraud

A sweeping lawsuit has been filed by New York Attorney General Letitia James against three crypto companies, Gemini Trust Company, Genesis Global Capital and its affiliates, and Digital Currency Group (DCG). The lawsuit alleges that the three companies defrauded over 230,000 investors of over $1 billion through a crypto lending program called “Gemini Earn”, per the official statement. Genesis' former CEO Soichiro Moro and DCG’s CEO Barry Silbert apart from Gemini founders have also been charged.

Genesis is a crypto lender, and the Digital Currency Group (DCG) is its parent company which was also involved in the program. Gemini is a crypto exchange platform, founded by the Winklevoss twins, who are famous for claiming that their former Harvard classmate Mark Zuckerberg stole their idea of Facebook.

The allegations against the three companies come at a time when Sam Bankman-Fried, co-founder of the crypto exchange FTX and his trading firm Alameda Research, is on trial for seven charges related to fraud and money laundering. In the lawsuit, it is stated that the three companies were also involved with Almeda which led to their collapse.

What is the Gemini Earn Programme?

The ‘Gemini Earn’ program was launched in 2021. The crypto lending program allowed investors to lend their crypto assets in the market and earn interest payments as high as 8%, as per CNN. As per the lawsuit, the program marketed itself as a low-risk investment, despite being linked to risky platforms such as Sam Bankman-Fried’s Alameda.

The Fall of Genesis

In 2022, crypto hedge fund Three Arrows Capital, one of Genesis’ largest borrowers, defaulted on billions of dollars in loans and subsequently filed for bankruptcy putting the company in turmoil. Following the FTX and Alameda crash, Genesis froze customer redemptions in its lending unit, and the unit later filed for bankruptcy.

As per Coindesk, Genesis lost over $100 million from another borrower, Babel Finance, and the NY AG stated that its total losses were over $1.1 billion, which was borne by the investors.

Details of the investigation and total losses

The investigation by the Office of the Attorney General (OAG) found that Gemini lied to investors of the investment program about the significant risks associated with the lending service. The company repeatedly assured investors that it was a low-risk investment. However, OAG’s investigation found that Gemini had performed internal analyses of Genesis which showed that the company’s financials were risky.

As per the lawsuit, Gemini knew Genesis’ loans were under-secured and at one point highly concentrated with just one entity, Alameda. However, the company did not reveal this information to investors. “These cryptocurrency companies lied to investors,” Attorney General Letitia James said in a statement. “And it was middle-class investors who suffered as a result,’ James added.

The scheme allegedly defrauded over 230,000 investors, including at least 29,000 New Yorkers, of about $1.1 billion. Due to the misleading claims thousands of investors lost millions of dollars and some even lost their life savings.

Response from DCG and Gemini

Both the Digital Currency Group (DCG) and Gemini have stated that they would fight the claims. DCG founder Barry Silbert called the allegations baseless and said "honesty and integrity have always been my guiding principles," as per the BBC.

Meanwhile, Gemini said the lawsuit confirmed its allegations against Genesis and disagreed with being named in the lawsuit. "Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position," it said in a statement shared on social media.

However, the lawsuit claims that Gemini was aware of the situation as some top Gemini staff withdrew their funds before the collapse in 2022.

What next for the investors?

The AG urges investors who have been affected by the deceptive conduct to report the issues to the OAG. In the past, the AG has recovered millions of dollars from other fraudulent platforms and companies. Thus, investors have a glimmer of hope of getting their money back.

Further with the lawsuit, Attorney General James sought to get Gemini, Genesis, and DCG banned from the financial investment industry and restitution for investors.