Today New York Attorney General (NYAG) Letitia James filed a lawsuit against Winklevoss-owned Gemini Trust, bankrupt crypto lender Genesis and its parent Digital Currency Group (DCG). It alleges they defrauded 230,000 investors of more than $1 billion through a crypto lending program.
Gemini Trust offered clients a crypto deposit scheme Gemini Earn, allowing them to earn interest. Genesis managed the money on behalf of Gemini, lending out the funds. However, the lending was highly concentrated on Sam Bankman-Fried’s Alameda (60% at one point), so when Alameda collapsed so did Genesis.
The lawsuit alleges that Gemini Trust’s internal analysis showed Genesis was risky, yet Gemini assured investors it was low risk. In February 2022, Gemini downgraded its credit rating estimate for Genesis from BBB to CCC (junk) without disclosing that to investors. A 73-year old grandmother invested her life savings of $199,000 in Gemini Earn, relying on statements about its safety.
Additionally, the NYAG charged former Genesis CEO Soichiro Moro and Barry Silbert, the CEO of parent DCG. In this case, the allegation is they defrauded investors by concealing more than $1.1 billion in losses. DCG and Genesis entered into a promissory note for that amount, in which DCG agreed to pay in a decade. To sidestep disclosing the promissory note, Genesis would not provide the notes to its accounts, allegedly. At one point Genesis also classified the ten year note as a current asset, which usually includes amounts due within a year.
“These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result,” said Attorney General James. “Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry.”
Earlier this year, the SEC sued Gemini and Genesis over the Gemini Earn program being an unregistered security.
That same week, Cameron Winklevoss publicly alleged that Genesis, DCG and Barry Silbert had committed fraud.