Gemini, Genesis and DCG Sued by New York Attorney General for Alleged $1 Billion Cryptocurrency Fraud

News | October 19, 2023 By:

On Thursday, October 19, 2023, the Office of the Attorney General of New York filed a complaint against cryptocurrency exchange Gemini, its partner lending company Genesis Capital, and their parent companies Genesis Global Holdco, Genesis Global Capital, Genesis Asia Pacific, Digital Currency Group and executives Barry Silbert and Michael Moro.

The complaint, filed in the Supreme Court of the State of New York, alleges the companies defrauded over 232,000 investors and caused over $1 billion in losses through the Gemini Earn lending program launched in February 2021. Gemini Earn allowed customers to earn interest by lending their cryptocurrencies to Genesis Capital, which would then lend the funds out and pay investors returns from the interest earned.

However, according to the complaint, Gemini knew Genesis Capital was a riskier investment than they portrayed. Internal risk reports from May 2021 showed Genesis Capital was highly leveraged with little liquidity and weak financials similar to junk bond-rated companies. By February 2022 Gemini rated Genesis Capital’s credit as CCC, or junk status.

Things took a turn for the worse in June 2022 when Genesis Capital suffered over $1 billion in losses from loans to entities like Three Arrows Capital and Babel Finance defaulting. Digital Currency Group provided Genesis Capital with a $1.1 billion promissory note payable over 10 years at 1% interest to cover losses. However, this did not actually address structural issues like lack of liquidity according to the complaint.

From June 2022 onwards, Genesis Capital, Digital Currency Group, and executives are accused of purposely misleading Gemini and investors by claiming losses were absorbed and financials were strong. Genesis Capital allegedly avoided sharing important financial statements. The deception continued until Genesis Capital suspended withdrawals from Gemini Earn on November 16, 2022, causing over $1 billion in investor losses.

The complaint brings multiple causes of action around securities fraud, failure to register, repeated fraudulent acts, and illegality. It seeks to permanently bar the companies from securities businesses in New York and recover damages for investors.

A copy of the original filing can be found here.