NY Attorney General Sues Crypto Firms Gemini, DCG, Genesis for ‘Fraud’ According to Reuters

New York Attorney General Sues Cryptocurrency Firms for Alleged Investor Fraud

The New York Attorney General, Letitia James, has filed a lawsuit against cryptocurrency companies Genesis Global, its parent company Digital Currency Group (DCG), and Gemini, claiming they defrauded investors of more than $1 billion.

This legal action highlights the ongoing difficulties faced by the cryptocurrency industry nearly a year after the collapse of the FTX exchange, previously managed by Sam Bankman-Fried, which sent shockwaves through the sector and affected several major players.

In her lawsuit, Attorney General James is seeking restitution for investors, a return of illicit gains, and a prohibition against the three cryptocurrency firms operating within the financial investment sector in New York.

Central to the lawsuit is the "Gemini Earn" program, a partnership between Gemini and Genesis that allowed customers to lend cryptocurrencies such as bitcoin to Genesis. The lawsuit alleges that Gemini promoted this program as a "low-risk investment," despite internal assessments indicating that Genesis was in a precarious financial situation.

Attorney General James asserts that Gemini was aware that Genesis’ loans were inadequately secured and heavily concentrated on a single entity—the now-defunct Alameda, a crypto hedge fund run by Bankman-Fried. According to the lawsuit, Gemini failed to disclose these risks to the investors participating in the Gemini Earn program.

In response, Gemini stated on the social media platform X that the lawsuit supports their assertions but contested the decision to include them in the litigation. The relationship between Genesis and Gemini has been fraught in recent months, especially regarding the Gemini Earn program, with Gemini being Genesis’ largest creditor following Genesis’ bankruptcy filing in January.

DCG expressed surprise at the Attorney General’s lawsuit, with CEO Barry Silbert labeling the allegations as unfounded. He stated, "We fully intend to fight the claims and look forward to being vindicated in this case… we have actively cooperated for months with the Attorney General’s investigation."

Last year, DCG assumed certain liabilities of Genesis in an effort to mitigate the impact of the exposure to the failing hedge fund Three Arrows Capital. Silbert added, "It is unfortunate that this lawsuit omits that fundamental fact," referring to the company’s efforts to support Genesis during a tumultuous time.