A suit filed Thursday by state Attorney General Letitia James accuses the Gemini Trust Company, Genesis Global Capital, LLC, and its affiliates, and the Digital Currency Group, Inc. (DCG) of defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1 billion.
James says an investigation performed by her office revealed Gemini lied to investors about a program it ran with Genesis. The suit alleges Gemini repeatedly assured investors the "Gemini Earn" program was low risk, but knew Genesis’ loans were undersecured, and at one point, highly concentrated with Sam Bankman-Fried’s Alameda, but it did not inform investors of that.
As part of Gemini Earn, Genesis generated profits for investors by lending assets to third parties and returning a portion of those profits to investors, James said.
The lawsuit charges Genesis, its former CEO Soichiro Moro, its parent company, DCG, and DCG’s CEO Barry Silbert, with defrauding investors and the public by trying to conceal more than $1.1 billion in losses, which were borne by thousands of investors, some of whom lost their life savings, James said.
The attorney general seeks to ban Gemini, Genesis and DCG from the financial investment industry in New York, restitution for investors and a return of profits obtained.
“Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn," James said. "Instead, Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry."
Gemini, a New York-based digital asset platform that allows investors to buy and sell cryptocurrencies, launched Gemini Earn in February 2021, James said. The suit alleges that through November 2022, Gemini’s internal risk analyses showed its loan book was risky, and at one point, Alameda was the borrower for nearly 60% of all outstanding loans from Genesis to third parties, according to James.
Gemini revised its estimate of Genesis’s credit rating from investment grade to junk grade in February 2022, but did not publicly tell investors it downgraded the rating and continued to market Gemini Earn as low risk, James said.
The AG's office found Genesis, DCG and their executives tried to conceal Genesis’ true financial condition from Gemini, Gemini Earn investors and the public.
"To conceal these losses, DCG and Genesis entered into a $1.1 billion promissory note, in which DCG agreed to pay Genesis $1.1 billion in a decade at only a one percent interest rate," James said. "The lawsuit states that the promissory note was part of a scheme to defraud Gemini Earn investors and the public about Genesis’s financial condition and its ability to operate its business."
James said New Yorkers who have been deceived in virtual asset markets should report them, and workers in the cryptocurrency industry that witness misconduct or fraud can file an online whistleblower complaint with her office.