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

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.”

In statements shared with TechCrunch, DCG said “we fully intend to fight the claims,” adding that the firm “always conducted its business lawfully and with integrity.” The company added that it has cooperated with the attorney general in past months and was “blindsided” by the suit. Silbert called the allegations “baseless.”

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.

The article has been updated to include statements from DCG and its CEO.