New York Sues Crypto Firms for Allegedly Defrauding Investors of $1 Billion

New York AG

New York Attorney General Letitia James has filed a lawsuit against three cryptocurrency firms and two executives for allegedly defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1 billion. The lawsuit claims that the firms lied to investors about the risks and losses of their products and services, and tried to hide their financial troubles.

The defendants in the lawsuit are Gemini Trust Company (Gemini), a crypto exchange founded by Tyler and Cameron Winklevoss; Genesis Global Capital, LLC and its affiliates (Genesis), a crypto lending and trading firm; Digital Currency Group, Inc. (DCG), a crypto investment firm and the parent company of Genesis; Soichiro “Michael” Moro, the former CEO of Genesis; and Barry Silbert, the founder and CEO of DCG.

An undersecured, concentrated loan

According to the lawsuit, Gemini partnered with Genesis to offer an investment program called Gemini Earn, which allowed customers to lend their crypto assets to Genesis in exchange for interest. Gemini marketed Gemini Earn as a low-risk investment that was safe and secure. However, the lawsuit alleges that Gemini knew that Genesis was in financial distress and that its loans were undersecured and highly concentrated with one entity, Alameda Research, a crypto trading firm owned by Sam Bankman-Fried.

The lawsuit also alleges that Genesis and DCG concealed more than $1.1 billion in losses from investors and the public by issuing a promissory note to Gemini that was backed by DCG’s assets. The promissory note was supposed to guarantee Gemini’s repayment in case of Genesis’ default, but the lawsuit claims that it was a sham transaction that did not reflect Genesis’ true financial condition.

An alleged cover up

The lawsuit further alleges that Moro and Silbert were aware of Genesis’ losses and tried to cover them up by falsifying financial statements, deleting emails, and misleading regulators. The lawsuit also accuses Moro and Silbert of engaging in insider trading by selling their DCG shares before the public disclosure of Genesis’ bankruptcy.

The lawsuit seeks to ban Gemini, Genesis, and DCG from the financial investment industry in New York, and to obtain restitution for investors and disgorgement of ill-gotten gains. The lawsuit also seeks civil penalties and injunctive relief.

Another example of bad actors in under-regulated industry

Attorney General James said in a statement that “

these cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result.” She added that “this fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry.”

The defendants have not yet issued any official response to the lawsuit, but Silbert tweeted on Thursday that

“we look forward to vigorously defending ourselves against these baseless allegations.”


Author: Victor

Public Health Scientist. Poet. Writer.