New York AG Sues Gemini, Genesis, DCG for Defrauding Customers

Key Takeaways

• Cryptocurrency companies Gemini, Genesis, and DCG are being sued by New York Attorney General Letitia James for defrauding customers.
• Crypto exchange Gemini is accused of lying to investors about the risks involved in the Gemini Earn program, while Gemini, Genesis, and the two companies’ CEOs are charged with defrauding both investors and the public in an effort to conceal more than $1.1 billion in losses.
• According to an investigation, nearly 60% of Genesis’s loans were tied up with former FTX CEO Sam Bankman-Fried’s Alameda Research at one point.
• Despite the legal and regulatory clampdown on the largest crypto companies in 2023, the industry is still hopeful for the approval of a spot bitcoin ETF in the coming months.

New York State Attorney General Letitia James is suing cryptocurrency firms Gemini, Genesis, and Digital Currency Group (DCG) on charges of fraud in a lawsuit announced Thursday.

The suit alleges that Genesis and DCG hid $1.1 billion in losses and Gemini lied to investors about its Gemini Earn program.

At the heart of the case against these three crypto companies is Gemini‘s Earn program, which the lawsuit alleges was marketed as a low-risk investment opportunity for users of the exchange. According to an investigation conducted by the Office of the New York State Attorney General (OAG), Gemini’s internal analysis of Genesis‘s financials indicated that the crypto firm was a risky partner for the Gemini Earn program.

Specifically, the suit alleges Gemini was aware of the under-secured nature of Genesis’s loans and that a nearly 60% concentration of those loans was held by Alameda Research, which was the investment firm affiliated with the now-bankrupt crypto exchange FTX. FTX and Alameda Research founder Sam Bankman-Fried is currently on trial for criminal charges related to that crypto exchange’s collapse.

Genesis is accused by the attorney general’s office of lying to its investors, the public, and Gemini regarding the state of their finances following major losses from borrowers now-defunct Three Arrows Capital and Babel Finance.

Additionally, Genesis is alleged to have told Gemini it regularly audited its borrowers when the firm hadn’t done so with Three Arrows Capital in more than two years. The lawsuit points to a specific post on X (formerly Twitter) made by Genesis as an example of a false statement made to the public in which it is claimed, “The Genesis balance sheet is strong and our business is operating normally.”

The collapse of Gemini Earn caused an alleged $1 billion in losses for consumers, with some Gemini customers losing their entire life savings. More than 230,000 investors are said to have been affected by these losses. James is seeking recovery of lost funds for Gemini’s users, in addition to a ban on Gemini, Genesis, and DCG from operating in New York’s financial investment industry.

“Hard-working 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.

The biggest names in the crypto industry, including Coinbase and Binance, in 2023 face lawsuits in the U.S. for a variety of regulatory violations. In spite of those actions, the industry is still hopeful that the approval of a bitcoin spot exchange-traded fund (ETF), including an offering from DCG’s Grayscale Investments, could be right around the corner.