The New York attorney general filed a suit against Gemini, Genesis, Digital Currency Group (DCG) and the companies’ leadership, accusing them of defrauding more than 230,000 investors of over $1 billion.
According to investigators, Gemini misled users about the Earn staking program, which it ran in partnership with Genesis. The Winklevoss brothers’ company repeatedly assured investors that the product was low-risk.
The funds raised through Earn were transferred by Gemini to Genesis, which used them to issue loans to Three Arrows Capital and Alameda Research.
Gemini knew that Genesis’ loans were undercollateralized and the lender’s financials were unsatisfactory, yet concealed this from investors, prosecutors allege.
Genesis, its former head Situro Moro, the parent company DCG and its CEO Barry Silbert are accused of fraudulent concealment of losses totaling more than $1.1 billion borne by investors.
Much of this amount was lost by the crypto-lending platform due to the collapse of Three Arrows Capital in June 2022. As a result of trouble at another client — Babel Finance — Genesis lost another $100 million.
According to investigators, the company did not conduct proper audits of borrowers’ financials. In addition, the platform misled Gemini regarding regular monitoring of collateral. In fact, for example, it had not received reports from Three Arrows Capital for more than two years.
The leadership at DCG allegedly colluded to hide losses from the Winklevoss-backed company, Earn investors and the community. The parent company agreed to issue Genesis a promissory note for $1.1 billion, with a ten-year maturity and an annual interest rate of 1%. The debt obligations became part of the fraud, prosecutors said.
Genesis, after the collapse of Three Arrows Capital, repeatedly provided Gemini with false balance sheets, including the promissory note amount among current assets. This was a knowing falsehood, as such assets are those that can be converted to cash or cash equivalents within a year, prosecutors said.
The prosecution asked the court to bar the defendants from any business involving the trade of securities within the state, to order restitution to investors, and to disgorge ill-gotten gains.
“Residents of New York and investors nationwide have lost more than $1 billion after being fed outright lies that their investments in Earn were safe and would grow. Instead, Gemini hid the risks of investing in Genesis, and the latter lied about its losses,” said Letitia James, the New York attorney general.
Earlier in September, Genesis filed a suit against DCG, demanding that the parent company repay loans totaling more than $600 million.