New York Attorney General Letitia James has filed a lawsuit against the Winklevoss twin-led exchange Gemini, along with crypto lending firm Genesis and its parent company, Digital Currency Group. The complaint alleges that the crypto firms defrauded over 230,000 investors, including 29,000 New Yorkers, out of more than $1 billion.
This lawsuit is the latest in a series of legal troubles for Gemini and Genesis. The companies have been engaged in a cycle of lawsuits over an investment product called Gemini Earn, with litigation also filed by the Securities and Exchange Commission. Barry Silbert, the head of DCG, is also involved in the legal battles.
According to the lawsuit, Gemini and Genesis claimed to have vetted and managed the risk associated with lending out assets through Gemini Earn. However, internal risk analyses revealed that loans to Genesis were risky. Genesis, in turn, lent out its assets to companies that eventually collapsed, including Three Arrows Capital and Alameda Research.
Gemini revised its estimate of Genesis’s credit rating from investment grade to junk in 2022 but did not disclose this update to investors. In fact, the lawsuit alleges that Gemini’s board of managers discussed ending Gemini Earn in 2022 due to the risks associated with Genesis.
Gemini Earn attracted over 230,000 investors during the crypto bull run, with a significant number of them coming from New York. The lawsuit highlights the story of a 73-year-old retired grandmother who invested her life savings of $199,000 in Gemini Earn based on the companies’ marketing statements.
New York Attorney General Letitia James has been one of the most aggressive regulators toward crypto in the United States, taking action against companies like Tether, Bitfinex, and former Celsius CEO Alex Machinsky. She also proposed comprehensive crypto legislation in May, putting her at odds with the state’s other powerful crypto regulator, the Department of Financial Services.
Gemini Earn has been embroiled in lawsuits since the collapse of FTX in November. Genesis froze withdrawals, including those from Gemini Earn, and filed for bankruptcy in January. The SEC also sued Genesis and Gemini, alleging that Gemini Earn constituted the unregistered offer and sale of securities. Gemini then sued DCG and Barry Silbert, alleging fraud and deception.
With the ongoing disputes between Gemini, Genesis, and their investors, the lawsuit from Letitia James adds another layer of complexity to the operations of these crypto giants. The complaint also accuses Barry Silbert and former Genesis CEO Soichiro Moro of trying to conceal over $1.1 billion in losses from investors.
The lawsuit seeks restitution for investors, disgorgement penalties, and a cease and desist order to prevent Gemini, Genesis, and DCG from engaging in business related to securities and commodities in New York. At the time of publication, Gemini, Genesis, and DCG had not responded to requests for comment on the lawsuit.