New York Attorney General Letitia James today filed a sweeping lawsuit against cryptocurrency companies Gemini Trust Company (Gemini), Genesis Global Capital, LLC, and its affiliates (Genesis), and Digital Currency Group, Inc. (DCG) for defrauding more than 230,000 investors, including at least 29,000 New Yorkers of more than $1 billion.
An investigation by the Office of the Attorney General (OAG) found that Gemini lied to investors about an investment program it ran with Genesis called Gemini Earn. Gemini repeatedly assured investors that investing with Genesis through their Gemini Earn program was a low-risk investment. However, OAG’s investigation found that Gemini’s internal analyses of Genesis showed that the company’s financials were risky. The lawsuit alleges that Gemini knew Genesis’ loans were undersecured and at one point highly concentrated with one entity, Sam Bankman-Fried’s Alameda, but did not reveal this information to investors.
The Gemini Earn program advertised itself as a low-risk investment where users could lend Genesis their cryptocurrency assets in exchange for interest payments of up to 8%.
The lawsuit also 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 investors. As a result of these misleading claims and deceptions, thousands of investors lost millions of dollars and, in some instances, lost their lifesavings. Through this lawsuit, Attorney General James seeks to ban Gemini, Genesis, and DCG from the financial investment industry in New York, and seeks restitution for investors and disgorgement of ill-gotten gains.
Genesis halted customer redemptions in its lending unit immediately following the FTX crisis, citing market unrest. Later, the loan business declared bankruptcy.
The most recent lawsuit claims that Gemini was aware of how hazardous Genesis’ loans were and how they had once been “highly concentrated” with Bankman-Fried’s cryptocurrency trading business Alameda Research. Bankman-Fried has pleaded not guilty to seven counts of fraud and conspiracy and is presently on trial in federal court in New York.
“These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result,” said Attorney General James. “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. 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. My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.”
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