New York Attorney General Letitia James announced plans to broaden her fraud lawsuit against crypto-focused venture capital firm Digital Currency Group and its Genesis Global Capital unit, alleging their scheme caused over $3 billion in losses.
This lawsuit expands on allegations initially levelled against DCG and Genesis last October, alleging they mislead investors about the Gemini Earn program.
Genesis Global Capital
The lawsuit alleges that Genesis Global Capital LLC, Gemini Trust and Digital Currency Group issued securities without adhering to U.S. securities regulations, failing to properly disclose risks related to Gemini Earn, which allowed retail customers to loan cryptocurrency assets at a percentage interest.
This lawsuit charges the defendants with misrepresenting the financial health of their business up until November 2022, when they stopped customer withdrawals citing lack of liquidity within their firm as grounds to stop doing so – constituting securities fraud.
This lawsuit seeks to permanently prohibit Gemini, Genesis, DCG and Silbert from working in New York’s securities and commodities industry, while seeking investor restitution and disgorgement of any unjust gains they have acquired through fraudulent practices. Gemini and DCG deny all allegations made in this complaint filed by attorneys general of New York and California along with investors represented by Silver Golub & Teitell LLP.
Gemini Trust
This lawsuit alleges Gemini Trust misled investors regarding the risks associated with its crypto lending program Gemini Earn. It seeks compensation for victims while banning Gemini Trust, its former CEO Soichiro Moro, DCG parent company DCG and founder Barry Silbert from New York’s financial investment industry.
Gemini Earn allegedly promised customers it could generate up to 8% interest by lending Genesis cryptoassets to third parties; however, according to the state of Washington it hid several risky aspects of its program, including loans being undersecured and highly concentrated with one firm (Bankman-Fried’s Alameda Research), which then collapsed later and caused Genesis significant financial loss.
Gemini failed to revise its internal creditworthiness rating from investment grade to junk despite warnings by both its risk personnel and third-party experts, according to the lawsuit. Additionally, penalties such as restitution and disgorgement of illicit gains may be applied as part of this suit.
Digital Currency Group
New York Attorney General Letitia James recently filed an amended complaint alleging Gemini Trust Company (Gemini) and Digital Currency Group Inc (DCG) founder/CEO Barry Silbert of defrauding investors through Gemini Earn. Her claims allege the firms of misrepresenting investment risks, leading them to misrepresent their investments and incurring over $1 billion in investor losses as a result of misrepresenting and misrepresenting risks of their crypto lending program, causing investors losses totalling more than $1 billion.
The state lawsuit alleges that Gemini, operated by twin brothers Tyler and Cameron Winklevoss, and DCG’s Genesis Global Capital LLC unit failed to disclose how risky their joint crypto-lending venture was following a number of high-profile bankruptcies including Sam Bankman-Fried’s FTX.
The state is seeking compensation for investors and disgorgement penalties from Gemini and Genesis as well as banning them from conducting any securities or commodity business in California. Their spokesperson denied all allegations made in a statement from them. Law360 keeps you up-to-date with legal issues, trends and developments so that you can make better decisions faster – sign up now for your free trial to stay up-to-date!
Letitia James
New York Attorney General Letitia James recently increased her legal action against Digital Currency Group and Genesis Global Capital unit by tripling investor losses, totalling more than $3 billion. This legal escalation underscores the necessity of robust cryptocurrency regulations that protect investors.
James’ office continues to investigate allegations of fraud within the crypto industry and encourages anyone with information or anecdotes to reach out or submit an online complaint form.
Before becoming New York State Attorney General, she made history as the first black woman elected as public advocate, passing more legislation than all previous public advocates combined–including legislation banning questions regarding salary history from job applications for women to help address gender pay disparity.
New York City Department of Consumer Affairs is conducting its own investigation of cryptocurrency fraud allegations, and encourages anyone with information to reach out or file a complaint. The lead investigators in this inquiry are Assistant Attorneys General Geoffrey Andreu and John Ruth from Investor Protection Bureau as well as Senior Investigator Gabriel Tapalaga; for support they’re joined by Investigators Xinyi Huang and Eddie Aguilar from Investigations Division.
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