New York Attorney General Letitia James has filed a lawsuit accusing crypto firms Gemini Trust and Genesis Capital of defrauding 230,000 individual investors of about $1 billion by claiming that risky investments were safe.
The lawsuit filed Thursday targets Gemini Earn, an interest-bearing product that allowed Gemini users to lend their crypto assets to Genesis with the promise of high returns.
Gemini, run by the Winklevoss twins known for their legal battles with Meta founder Mark Zuckerberg, praised Earn as “low risk” even as internal analysis had shown Genesis to be on risky financial footing, James claimed.
Genesis parlayed the funds into large loans for major players in the crypto space — including at one point a nearly $2 billion loan to Alameda Research, the hedge fund of disgraced FTX founder Sam Bankman-Fried.
Although the Alameda loan was recalled before the collapse of FTX sent shockwaves through the crypto industry, James claims it was one of the risky and undersecured loans that Gemini and Genesis hid from Earn investors.
Gemini, run by Winklevoss twins Cameron and Tyler (together above), is among the companies named in a new lawsuit filed by New York Attorney General Letitia James
James has filed a lawsuit accusing crypto firms Gemini Trust and Genesis Capital of defrauding 230,000 individual investors of approximately $1 billion by claiming that risky investments were safe.
Days after FTX’s implosion in November 2022, Genesis suspended withdrawals, owing at least $1 billion to more than 232,000 Earn investors, including at least 29,000 New Yorkers, according to the new lawsuit.
The victims included a 73-year-old grandmother and her husband who invested their life savings of more than $199,000 in Earn, believing it was a safe choice, but have yet to get any of the money back, according to the lawsuit. .
Another Gemini Earn investor, a 56-year-old New Yorker, invested and lost about $20,500 in Gemini Earn, virtually all of his savings, the lawsuit alleges.
Genesis filed for bankruptcy in January and has since been embroiled in a bitter legal dispute with Gemini, the cryptocurrency exchange founded in 2014 by Cameron and Tyler Winklevoss.
In addition to Gemini and Genesis, the new indictment charges former Genesis CEO Soichiro Moro, Genesis parent company Digital Valuta Group (DCG), and DCG’s CEO Barry Silbert.
James separately accused Genesis, Moro, DCG and Silbert of trying to hide more than $1.1 billion in losses.
Silbert told DailyMail.com in a statement: “I am shocked by the baseless allegations in the Attorney General’s complaint and intend to fight these claims in court. Honesty and integrity have always been my guiding principles.’
A DCG spokesperson said: ‘We fully intend to fight the claims and look forward to being vindicated in this case. DCG has always conducted its activities lawfully and with integrity.
‘We have actively cooperated with the Attorney General’s investigation for months, in an open and transparent manner. We were blindsided by filing the complaint and there is no evidence of any wrongdoing by DCG, Barry Silbert or its employees.”
A Gemini spokeswoman referred an inquiry to the company’s post on X, where it claimed to be a victim in the case.
“The NY AG’s lawsuit confirms what we have been saying all along – that Gemini, Earn users and other creditors were victims of a massive fraud and were systematically ‘lied to’ by these parties about ‘Genesis’ financial condition,'” the post stated.
“That said, we completely disagree with the NY AG’s decision to also charge Gemini. Blaming a victim for fraud and lying makes no sense and we look forward to defending ourselves against this inconsistent position,” the company added.
Genesis parent company Digital Currency Group (DCG) and DCG’s CEO Barry Silbert (above) are also accused in the new lawsuit
James’ lawsuit seeks to ban Gemini, Genesis and DCG from the New York financial investment industry, seeking restitution for investors and return of all ill-gotten gains.
“These cryptocurrency companies lied to investors and tried to hide over a billion dollars in losses, and it was middle-class investors who suffered,” James said in a statement.
‘This fraud is yet another example of bad actors wreaking havoc in the under-regulated cryptocurrency industry,” she added.
The allegations are yet another example of how FTX’s collapse rippled through the crypto industry, which continues to suffer nearly a year after the company’s implosion.
According to the lawsuit, Genesis disclosed to Gemini in the summer of 2022 that its loans were heavily concentrated in Alameda, which was the borrower for nearly 60 percent of all outstanding Genesis loans to unaffiliated counterparties.
On August 8, 2022, Cameron Winklevoss confronted a Genesis executive about the company’s risk management practices and threatened to phase out Earn unless DCG guaranteed repayment to Earn investors, the lawsuit alleges.
Example Gemini Earn returns, which fluctuated rapidly, can be seen above. The product allowed Gemini users to lend their crypto assets to Genesis with the promise of high returns
On August 16, 2022, Genesis recalled nearly $2 billion in loans to Alameda – but the lawsuit claims this left Genesis’ loan portfolio heavily concentrated in loans to related parties, including its own parent company DCG.
Genesis also made large loans to hedge fund Three Arrows Capital, which collapsed in 2022.
Silbert told DailyMail.com on Thursday: ‘Last year, mine and DCG’s goal was to help Genesis weather the storm caused by the collapse of Three Arrows and position Genesis for success in the future. It is unfortunate that this lawsuit omits that basic fact.”
Genesis filed for Chapter 11 protection from creditors in January, two months after withdrawals stopped.
Cameron Winklevoss has publicly said that DCG and Silbert misrepresented the financial health of DCG’s lender Genesis.
Last month, Genesis sued DCG seeking repayment of more than $610 million in loans that matured in May. According to court documents, DCG owes Genesis and other debtors more than $1.7 billion.