The Attorney General of New York, Letitia James, has filed a lawsuit against Gemini Trust Company, Genesis, and Digital Currency Group for allegedly defrauding more than 230,000 investors and taking away more than $1 billion from them.
The lawsuit alleges that Gemini misinformed investors about its alliance with Genesis, the Gemini Earn investment program, and the risks associated with it. Despite Gemini's claims that the investment program was low-risk, investigations show that Genesis' financials were risky.
However the lawsuit claims that Gemini was aware of Genesis’ unsecured loans and the fact that they were highly concentrated with Sam Bankman-Fried’s Alameda at one point, but did not disclose this information to investors. Additionally, the lawsuit charges Genesis, along with its former CEO Soichiro Moro, parent company DCG, and its CEO, Barry Silbert, with defrauding investors by trying to hide over $1.1 billion in losses.
Because of the result of these misleading claims and deceptions, thousands of investors lost millions of dollars and, in some instances, lost their life savings. Through this lawsuit, Attorney General James seeks to ban Gemini, Genesis, and DCG from the financial investment industry in New York and seeks restitution for investors and disgorgement of ill-gotten gains.
“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.
“Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Impact on Investors
DCG’s and Gemini Genesis fraud led to roughly $1 billion in losses for more than 230,000 investors, including at least 29,000 New Yorkers. One of the New York investors harmed by Gemini Earn was a retired 73-year-old grandmother, who invested her and her husband’s life savings of over $199,000 in Gemini Earn because they believed Gemini’s marketing statements that it was a safe and secure choice. The investor had hoped to use this money to pay for her grandchild’s education but lost it all because of this fraud.
A 56-year-old New Yorker, also invested and lost approximately $20,500 in Gemini Earn, virtually all his savings. He chose Gemini Earn because he researched the product and came to believe, based on Gemini’s statements, that Gemini Earn was more secure than other interest-bearing cryptocurrency investments.
Gemini Fraud
This New York-based digital asset platform that allows investors to buy and sell cryptocurrencies. In February 2021, Gemini launched an investing program with Genesis called Gemini Earn, in which Genesis generated profits for investors by lending assets to third parties and returning a portion of those profits to investors. When launching Gemini Earn, Gemini told investors that it had vetted Genesis through a risk management framework and that it was a trusted company. However, OAG found that Gemini’s internal risk analyses of Genesis showed that loans to the company were risky.
Further The lawsuit alleges that from the start of the Gemini Earn program in February Gemini's internal risk analyses from 2021 to November 2022 revealed that Genesis' loan book was highly concentrated and risky, with a small number of counterparties. In fact, at one point, Alameda, owned by Sam Bankman-Fried, was the borrower for almost 60% of all outstanding loans from Genesis to third parties. Despite this, only a year into the program, in February 2022, Gemini revised its credit rating estimate of Genesis from BBB (investment grade) to CCC (junk grade) but did not inform investors of this downgrade. Instead, Gemini continued to promote Earn as a low-risk program.
Investigation by the OAG also found that in July 2022, Gemini's board of managers discussed the possibility of ending the Gemini Earn program due to the risks associated with Genesis. One board member even compared Genesis' financial condition to that of Lehman Brothers before its collapse. Additionally, in the summer of 2022, Gemini risk personnel withdrew their investments from Earn. Despite these warning signs, Gemini failed to provide its investors with any meaningful warnings about the risks associated with the program.
