New York Attorney General Letitia James has filed a lawsuit against three cryptocurrency companies, accusing them of defrauding over 230,000 investors and swindling more than $1 billion. The companies involved are Gemini Trust Company (Gemini), Genesis Global Capital, LLC and its affiliates (Genesis), and Digital Currency Group, Inc. (DCG). The lawsuit claims that Gemini misled investors by promoting a program called Gemini Earn that promised interest on crypto deposits. However, it is alleged that Genesis engaged in lending activities with risky borrowers, contradicting the low-risk image presented by Gemini. Furthermore, the lawsuit highlights Gemini’s failure to disclose the downgraded credit rating of Genesis or their consideration of terminating the program.
The lawsuit also alleges that Genesis and DCG attempted to hide substantial losses from investors and the public. In June 2022, one of Genesis’ major borrowers, Three Arrows Capital, defaulted on loans worth billions. Around the same time, another borrower named Babel Finance caused Genesis a loss exceeding $100 million. Collectively, Genesis suffered a loss surpassing $1.1 billion. To conceal these losses, DCG and Genesis planned a fraudulent promissory note in which DCG agreed to pay Genesis $1.1 billion over ten years at an interest rate of one percent. The lawsuit contends that this note was part of a scheme aimed at deceiving investors and the general public regarding the financial state of Genesis.
The lawsuit also accuses Genesis, DCG, and their executives of making false statements to the public and Gemini regarding their financial situation. Just two days after the Three Arrows Capital default, they took to Twitter claiming that: “Despite continued heightened market volatility, the Genesis balance sheet is strong and our business is operating normally.” Additionally, they also lied to Gemini’s risk management teams by providing misleading information about their losses and submitting fraudulent reports that misrepresented the promissory note as a current asset.
Attorney General James aims to permanently ban Gemini, Genesis, DCG, and their executives from the financial investment industry in New York. Additionally, she is seeking restitution for defrauded investors and disgorgement of ill-gotten profits. Attorney General James has recently taken legal action to protect investors from deceptive cryptocurrency companies and has unveiled comprehensive cryptocurrency legislation aimed at bolstering industry regulations within New York.
Hot Take: New York Attorney General Takes Legal Action Against Cryptocurrency Companies for Fraud
New York Attorney General Letitia James has filed a lawsuit against three cryptocurrency companies, accusing them of defrauding investors and swindling over $1 billion. The companies involved are Gemini Trust Company (Gemini), Genesis Global Capital, LLC and its affiliates (Genesis), and Digital Currency Group, Inc. (DCG). The lawsuit alleges that Gemini misled investors by promoting a program called Gemini Earn that promised interest on crypto deposits. It also claims that Genesis engaged in lending activities with risky borrowers, contradicting the low-risk image presented by Gemini. Additionally, the lawsuit accuses Genesis and DCG of attempting to hide substantial losses through fraudulent means.
Attorney General James is seeking to permanently ban these companies and their executives from the financial investment industry in New York while also seeking restitution for defrauded investors and disgorgement of ill-gotten profits. This legal action highlights the Attorney General’s aggressive stance on cryptocurrency regulation and her commitment to protecting investors from deceptive practices in the industry.
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