New York Attorney General Letitia James is suing Gemini, an exchange led by the Winklevoss twins, as well as cryptocurrency lending company Genesis and its parent company Digital Money Group. The indictment filed Thursday alleges that the cryptocurrency company defrauded more than 230,000 investors, including at least 29,000 New Yorkers, out of more than $1 billion.
Gemini and Genesis are locked in a series of lawsuits over an investment product called Gemini Earn, which also involves lawsuits collection by the Securities and Exchange Commission. The New York Attorney General’s charges are just the latest in a series of legal woes facing the crypto empire of the Winklevoss twins and DCG chief Barry Silbert.
“These cryptocurrency companies lied to investors and attempted to conceal over a billion dollars in losses, and it was middle-class investors who ultimately suffered,” James said in a statement shared with investors. wealth. “This fraudulent activity is yet another example of the damage bad actors are causing throughout the under-regulated cryptocurrency industry.”
Gemini earns
During the cryptocurrency bull market, investment vehicles suddenly appeared on the scene and began to offer attractive interest rates that traditional financial companies could not match. Genesis, a subsidiary of the Digital Currency Group, which also includes crypto publication CoinDesk and asset management firm Grayscale, offers users interest on deposits in cryptocurrency, which it then lends to companies such as hedge funds.
In February 2021, Genesis partnered with Gemini, a crypto platform including trading and investment services founded by Tyler and Cameron Winklevoss, to offer a product called Gemini Earn.Through the service, Gemini users can lend cash and cryptocurrencies at interest rates Gundam 8% goes to Genesis, which lends the assets, ostensibly generating compensation.
According to the lawsuit, Gemini told investors that it scrutinized Genesis through its risk management framework, even though its internal risk analysis indicated that the loans to Genesis were risky. Genesis, of course, lent its assets to companies that later collapsed, including Three Arrows Capital and Alameda Research.
As detailed in the lawsuit, Sam Bankman-Fried’s Alameda was at one point responsible for nearly 60% of all outstanding loans Genesis made to outside parties. Borrower. Bankman-Fried is currently facing a criminal trial in New York federal court related to the collapse of FTX and Alameda.
The lawsuit alleges that while Gemini revised Genesis’ credit rating estimate from investment grade to junk status in February 2022, it did not publicly disclose the update to investors. In July 2022, Gemini’s management board discussed the termination of Gemini Earn due to risks associated with Genesis, with some Gemini risk personnel allegedly withdrawing their investments from the program.
customer loss
As cryptocurrency prices soared in 2021 and early 2022, Gemini Earn attracted more than 230,000 investors, including enough from New York to attract the attention of the attorney general. The lawsuit details one victim, a 73-year-old retired grandmother who invested $199,000 of her life savings in Gemini Earn, allegedly motivated by its “marketing claims.”
Letitia James’ office has proven to be one of the most aggressive regulators on cryptocurrencies in the United States, including actions against stablecoin issuers tether and its associate Bitfinex, as well as former Celsius CEO Alex Machinski. In May, James also proposed enacting sweeping crypto legislation, although this put her office at odds with the state’s other powerful crypto regulator, the Financial Services Department.
Gemini Earn has been a lightning rod for litigation. After the FTX collapse in November, Genesis Freeze withdrawals, trapping users’ funds, including Gemini Earn.Genesis submit Filed for bankruptcy in January.
A week before Genesis filed for bankruptcy, the U.S. Securities and Exchange Commission (SEC) be accused Genesis and Gemini both alleged that Gemini Earn constituted an unregistered offer and sale of securities. Then in July, after a months-long public dispute on Twitter, Gemini sued Genesis parent DCG and CEO Barry Silbert, alleging “fraud and deceit.”
As Gemini and Genesis continue to discuss the details of unfreezing Gemini Earn’s trapped funds, James’ lawsuit adds a new wrinkle to the operations of the two cryptocurrency heavyweights.
The indictment also accuses Silbert and former Genesis CEO Soichoro Moro of trying to hide more than $1.1 billion in losses from investors, both Gemini and the public. According to the lawsuit, Genesis lied to Gemini about its regular review of borrowers’ financial statements, claiming that Genesis had not received audited financial statements from Three Arrows Capital more than two years after requesting them. Genesis also made misleading statements and withheld key information to hide its financial condition, the lawsuit continues.
In addition to damages and disgorgement penalties against investors, the lawsuit seeks to prevent Gemini, Genesis and DCG from engaging in securities and commodities-related business in New York.
wealth Gemini, Genesis and DCG were contacted at the time of publication but did not immediately receive a response.
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