CRYPTO CRIMINAL CAPITALI$M

NY attorney general sues Gemini, Genesis and DCG for allegedly defrauding crypto investors of over $1B

Jacquelyn Melinek
Thu, October 19, 2023 

Image Credits: Alex Kent (opens in a new window) / Getty Images


New York Attorney General Letitia James filed a lawsuit against three crypto companies: Gemini Trust Company, Genesis Global Capital and its affiliates and Digital Currency Group (DCG) for allegedly defrauding investors of over $1 billion, according to a statement on Thursday.

The lawsuit also brought charges against former Genesis CEO Soichiro “Michael” Moro and DCG’s founder and CEO Barry Silbert for trying to hide $1.1 billion in losses and “defrauding investors and the public.”

About 230,000 investors were affected by the three firms, the government's statement alleges. The investigation claims that Gemini lied to investors about its investment program, Gemini Earn, by calling it a “low-risk investment,” when it wasn’t.

“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,” the agency stated.

“This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” James said in a statement.

In June 2022, one of Genesis’ largest borrowers, crypto hedge fund Three Arrows Capital, defaulted on billions of dollars in loans -- and later filed for bankruptcy in July. Around that time, Genesis lost over $100 million from another borrower, Babel Finance, the NY AG stated, bringing its total losses to greater than $1.1 billion.

The allegations come at a time when Bankman-Fried, co-founder of crypto exchange FTX and crypto trading firm Alameda, is on trial for seven charges related to fraud and money laundering. After FTX and Alameda filed for bankruptcy in November, the resulting market carnage helped bring down Genesis, which filed for bankruptcy in January.

On January 12, the U.S. Securities and Exchange Commission charged Genesis and cryptocurrency exchange, wallet and custodian Gemini for the unregistered offer and sale of securities to retail investors through Gemini Earn crypto asset lending program. The prosecutors said Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors.

Winklevoss-owned crypto firm hit by lawsuit alleging it defrauded investors of $1 billion

New York AG Letitia James also named other companies in the suit.

Lawrence Bonk
·Contributing Reporter
Thu, October 19, 2023 

ASSOCIATED PRESS


Gemini Trust Company, a cryptocurrency exchange helmed by the infamous Cameron Winklevoss and Tyler Winklevoss, just got hit with a lawsuit alleging that it defrauded investors. The suit was brought forth by New York Attorney General Letitia James, the same AG currently prosecuting former president Donald Trump on sweeping charges of fraud.

This isn’t solely directed at Gemini, as cryptocurrency firms Digital Currency Group (DGC) and Genesis Global Capital are also named in the suit. All told, the civil lawsuit alleges that the three companies collectively defrauded 230,000 investors to the tune of more than $1 billion, as reported by Axios. The AG also charged former Genesis CEO Soichiro "Michael" Moro and DCG founder and chief Barry Silbert for trying to conceal the true financial condition of its lending unit.


As for the Winklevoss twins and Gemini, the suit alleges that the digital asset platform didn’t properly disclose the financials of Genesis before partnering with the crypto exchange to form an investment platform called Gemini Earn in 2021. The suit alleges that Gemini announced that Genesis was a “trusted company” despite internal risk analyses to the contrary.

It goes on to allege that in February 2022, Gemini revised its estimate of Genesis’ credit rating, lowering it from the investment-grade BBB to the junk-grade CCC, all without publicly revealing this change to investors and continuing to advertise correlated investments as “low-risk.” Additionally, it’s been alleged that many of the company’s risk assessors took their own money out of Gemini Earn without informing investors.

There are even allegations that more than 60 percent of Genesis’ financials were tied to Sam Bankman-Fried’s disgraced hedge fund Alameda Research. To that end, the connection between Gemini and Genesis is eerily similar to the ties between FTX and Alameda Research, and we all know what happened there.

Gemini took to the preferred social media platform for crypto-enthusiasts, X/Twitter, to refute the allegations, writing that it was simply the victim of fraud on the part of Genesis and DCG. It’s notable the firm didn’t comment on what they knew about Genesis’s poor financial condition and when they knew it, placing the onus of blame on Genesis CEO Moro and DCG founder Silbert.

“Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position,” Gemini wrote.

For his part, DCG founder Barry Silbert penned a statement that completely refuted his side of the allegations, writing that he is “shocked by the baseless allegations in the Attorney General’s complaint” going on to say that he intends to “fight these claims in court.” Cameron Winklevoss hasn’t issued his own statement, but did retweet Gemini’s post on the matter.

Genesis ceased all cryptocurrency trading last month, as reported by CoinDesk, after filing for bankruptcy protection back in January. Today’s lawsuit seeks to recoup the $1 billion in losses and hopes to ban all three companies from the financial industry in New York