New York Attorney General Letitia James on Thursday charged cryptocurrency companies Genesis Global, parent company Digital Valuta Group (DCG) and Gemini for allegedly “defrauding” investors of more than $1 billion (approximately Rs. 8,317 crore) .
The development underlines the challenges the crypto industry continues to face almost a year after the collapse of Sam Bankman-Fried’s FTX exchange, which led to an industry crisis that overwhelmed several major companies.
Through the lawsuit, Attorney General James is seeking restitution for investors and “restitution of ill-gotten gains,” along with a ban on all three cryptocurrency companies from New York’s financial investment industry.
At the heart of the lawsuit is a program Gemini ran in partnership with Genesis called “Gemini Earn.” The program allowed customers to lend crypto assets such as bitcoin to Genesis.
Gemini, run by the Winklevoss twins best known for their legal battle against Meta Platforms’ Mark Zuckerberg, had labeled the program a “low-risk investment” even as internal analyzes had shown that Genesis was on risky financial footing wrong, James claimed.
Gemini knew Genesis’ loans were undersecured and at one point heavily concentrated in one entity, Bankman-Fried’s crypto hedge fund Alameda, which later went bankrupt, James said.
Gemini did not disclose this information to Gemini Earn investors, she added.
Gemini posted on messaging platform
Genesis and Gemini have clashed several times in recent months, including over Gemini Earn. Gemini is also the largest creditor of Genesis, which filed for bankruptcy protection in January.
DCG said it was blindsided by the attorney general’s complaint, and company CEO Barry Silbert said the lawsuit contained “baseless allegations.”
“We fully intend to fight the claims and look forward to being vindicated in this case. We have actively cooperated with the Attorney General’s investigation for months,” DCG added.
DCG took over certain liabilities of Genesis last year to soften the blow to the unit from its exposure to bankrupt crypto hedge fund Three Arrows Capital.
“Last year, mine and DCG’s goal was to help Genesis weather the storm caused by the collapse of Three Arrows… it’s unfortunate that this lawsuit leaves out that fundamental fact,” Silbert said.
© Thomson Reuters 2023
