By Keith Griffith For Dailymail.com and Reuters
22:11 09 Feb 2024, updated 22:28 09 Feb 2024
- James on Friday expanded her lawsuit against crypto firms Genesis and Gemini
- She is seeking $3 billion of restitution for more than 230,000 investors
- Alleges a crypto lending scheme was falsely touted as safe for investors
New York Attorney General Letitia James on Friday expanded her lawsuit against crypto firms Genesis and Gemini, tripling the size of their alleged fraud scheme to more than $3 billion.
The amended complaint expands an October suit James filed against Digital Currency Group, its Genesis Global Capital unit, and Gemini Trust, the exchange run by twin brothers Cameron and Tyler Winklevoss.
She claimed they caused more than $1 billion of losses by misleading investors about the Gemini Earn program, which let customers lend crypto assets to Genesis in exchange for a high rate of return.
The attorney general said as more investors came forward, it became clear that ‘the scam perpetrated by DCG through Genesis’ also ensnared investors who sent money directly to Genesis and were falsely assured their money was safe.
Many of the additional investors were small retail customers, including a chiropractor and a stay-at-home father who each invested $2 million of bitcoin with Genesis, the complaint said.
James is seeking more than $3 billion of restitution for the more than 230,000 investors who she believes were defrauded.
‘This illegal cryptocurrency scheme, and the horrific financial losses that real people have suffered, are yet another reminder of why stronger cryptocurrency regulations are needed to protect all investors,’ James said in a statement.
Barry Silbert, who is DCG’s chief executive, and Soichiro Moro, a former Genesis chief executive, are also defendants.
A DCG spokesman told DailyMail.com in a statement: ‘There is nothing new here. This is the same baseless complaint recirculated to generate another round of press headlines.
‘We will fight the claims aggressively and we will win. DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated.’
Gemini, run by the Winklevoss twins known for their legal battles with Meta founder Mark Zuckerberg, touted Earn as ‘low-risk’ even when its internal analyses had found Genesis was on risky financial footing, James alleged.
Genesis bundled the funds into big loans for major players in the crypto space — including at one point a nearly $2 billion loan to Alameda Research, the hedge fund of disgraced FTX founder Sam Bankman-Fried.
Though the Alameda loan was recalled before the collapse of FTX sent shockwaves through the crypto industry, James alleges that it was one of the risky and under-secured loans that Gemini and Genesis concealed from Earn investors.
Days after the implosion of FTX in November 2022, Genesis suspended withdrawals, owing at least $1 billion to more than 232,000 Earn investors, including at least 29,000 New Yorkers, according to the new suit.
Late Thursday, it reached a settlement with James’ office, agreeing to pay on her fraud claims so long as it fully repays customers through the Chapter 11 process. That settlement requires a bankruptcy judge’s approval.
Genesis filed for bankruptcy two months after halting withdrawals by Gemini Earn customers following the collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange.
Both Genesis and Gemini were also sued by the U.S. Securities and Exchange Commission, which said they bypassed disclosure requirements meant to protect Gemini Earn customers.
Last week, Genesis agreed to pay the SEC a $21 million fine, also contingent on its repaying customers first.
Gemini, meanwhile, has sued DCG over their failure of their crypto lending partnership.