The New York attorney general filed a lawsuit against three prominent participants in the digital asset business on Thursday, October 19, continuing her attack on cryptocurrency firms.
The exchange owned by the Winklevoss brothers, Gemini Trust, as well as its financial backer, Genesis Capital, and their parent business, Digital Currency Group, are all named in the lawsuit. The complaint alleges that the defendants defrauded investors of $1 billion by lying to them and covering up their losses, as reported by the New York Times.
Risky and Unstable
In the lawsuit, Attorney General Letitia James alleges that Gemini misled customers about the risks associated with Gemini Earn, a joint venture between Gemini and Genesis that offered customers a high return of up to 8% by basically lending their crypto to the firms.
After the collapse of Sam Bankman-Fried's FTX crypto exchange in November 2022, Genesis faced difficulties. It locked accounts as the value of digital assets plummeted, making it impossible for Earn investors to retrieve hundreds of millions of US dollars' worth of cryptocurrencies.
James claims in her complaint that Gemini's internal papers demonstrate that the risk analysis teams at the business regarded Genesis as exceedingly unstable, being heavily leveraged and having little liquidity. This was only a few months after Earn was founded in 2021.
While Mr. Bankman-Fried is on trial for criminal fraud, Gemini was also aware that Genesis loans had been invested in his failed crypto hedge fund, Alameda Research.
However, Gemini allegedly did not warn its investors, leaving at least 29,000 New Yorkers and hundreds of thousands more around the nation unaware of the risks to their investments, as indicated by James.
Genesis and Digital Currency Group are being sued for allegedly seeking to hide Genesis' financial losses from Gemini Earn's investors and the general public.
According to the lawsuit, Genesis and Digital Currency conspired to conceal their financial difficulties by having Genesis enter into a $1.1 billion, 10-year promissory note with Digital Currency last year. The note was intended to give the appearance that Genesis was on a more solid financial foundation and to encourage investors to continue participating in the Earn program.
In James' remark, she said: "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 to push for stronger regulations to protect all investors."
Blaming the 'Victim'
Following the lawsuit, Gemini replied on X (previously Twitter) with a post that expressed mixed feelings about the legal action. The petition "confirms what we've been saying all along - that Gemini Earn users and other creditors were the victims of a massive fraud and systematically 'lied to' by these parties about 'Genesis's financial condition," it stated.
Moreover, it strongly disagreed with the decision to include Gemini in the lawsuit, arguing that it is illogical to hold the victim responsible for the fraud and deceit they experienced.
