New York Attorney General Expands Lawsuit Against DCG

The New York State Office of the Attorney General (OAG) has tripled the estimated fraud amount to over $3 billion in the case against Gemini, Genesis, and Digital Currency Group (DCG).

In October 2023, the agency filed a lawsuit against the companies and their executives, accusing them of defrauding 230,000 investors of more than $1 billion.

According to the investigation, Gemini misled users about the Earn staking program, which it implemented jointly with Genesis. The Winklevoss brothers’ company repeatedly assured investors that the product was low-risk.

Funds raised through Earn were transferred by Gemini to Genesis, which used them to issue loans to the bankrupt Three Arrows Capital and Alameda Research.

Law enforcement claims that Gemini was aware that Genesis’s loans were undercollateralized and that the lender’s financial performance was unsatisfactory, but concealed this from investors.

“The fraud was so extensive that many other victims reported losses. This illegal cryptocurrency scheme and the terrible financial losses suffered by real people are yet another reminder of the need for stricter rules regarding digital assets to protect all investors,” said New York Attorney General Letitia James in February.

She urged state residents affected by cryptocurrency market fraud to report it to the OAG. James also asked employees of companies in the crypto industry who have witnessed fraud or other misconduct to file anonymous online complaints with the agency.

A DCG representative told The Block that the claims are “baseless” and stated that the company and its CEO Barry Silbert will be vindicated.

“There is nothing new here. It is the same baseless complaint that has been rehashed for another round of headlines. We will aggressively fight the claims and prevail. DCG has always conducted its business lawfully and with integrity,” he said.

At the end of January 2024, Genesis settled a dispute with the SEC regarding Earn. The platform agreed to pay $21 million as a penalty after fully repaying its debts to creditors.

Previously, Genesis reached an agreement with the New York Department of Financial Services. It includes an $8 million fine, cessation of operations in the state, and relinquishment of its BitLicense.

Back in September 2023, Genesis filed a lawsuit against DCG, demanding that the parent company repay loans totaling more than $600 million.

In January 2024, DCG announced it had satisfied its obligations to creditors and paid about $700 million to Genesis. The latter disputed this.