Gemini, DCG Face Lawsuit Alleging $1.1 Billion Fraud

Crypto exchange Gemini and venture capital firm Digital Currency Group (DCG) are facing a lawsuit filed by New York Attorney General Letitia James, alleging the companies defrauded customers of $1.1 billion.

The lawsuit, filed Thursday (Oct. 19), accuses Gemini and DCG’s Genesis Global Capital unit of not disclosing the risks associated with a crypto-lending program they launched in 2021, Bloomberg reported.

According to the lawsuit, Gemini misled customers about the risks involved in its partnership with Genesis and failed to disclose that nearly 60% of its third-party loans were given to Sam Bankman-Fried’s now-collapsed crypto trading firm, Alameda Research. Genesis and DCG are also accused of attempting to conceal mounting losses.

This lawsuit follows a previous lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Genesis and Gemini in January over their failed joint venture, Gemini Earn. The SEC alleged that the companies offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors, PYMNTS reported at the time.

Gemini Earn aimed to generate up to 8% interest for customers by allowing Genesis to lend their crypto assets to third parties, according to Bloomberg. However, the program suffered significant losses due to the collapse of several high-profile borrowers, including FTX and Babel Finance.

The lawsuit claims that Genesis failed to adequately audit its borrowers and lied to Gemini about regularly reviewing their financial statements. It also alleges that Gemini’s board of managers considered ending the Gemini Earn program in July 2022 due to the risks associated with Genesis but failed to provide sufficient warnings to investors.

In a statement to Bloomberg, DCG said it has always conducted business “lawfully and with integrity,” and that the company will fight the state’s allegations.

In a statement posted on X, Gemini pushed back against the lawsuit, saying that accusing “a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”

Today, the @NewYorkStateAG sued Genesis, its former CEO @michaelmoro, its parent company @DCGco, and DCG’s CEO @BarrySilbert personally for conspiring to lie and defraud Gemini, Earn users, and other Genesis creditors. The NY AG’s lawsuit 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.” With that said, we wholly disagree with the NY AG’s decision to also sue Gemini. Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.

— GeminiTrustCo (@GeminiTrustCo) October 19, 2023

Representatives for Genesis didn’t respond to a request from Bloomberg for comment.

James seeks to ban Gemini, Genesis and DCG from the financial investment industry in the state. She is also seeking restitution for investors and disgorgement of the companies’ allegedly ill-gotten gains, Bloomberg reported.

Gemini and Genesis have also been engaged in lawsuits against each other following the challenges faced by the cryptocurrency sector.

Genesis, which filed for bankruptcy in January, sued DCG to recover approximately $620 million in outstanding loans. Gemini, on the other hand, has sued DCG and its founder Barry Silbert, seeking damages and losses related to alleged fraud and deception associated with Gemini Earn.