Alleged $1B Fraud Leads to Crypto Lawsuit

( – Prosecutors acting on behalf of the state of New York have filed a lawsuit against three cryptocurrency companies who stand accused of undertaking fraudulent activities. Prosecutors allege that their fraudulent activities resulted in over 230,000 investors suffering a total loss of $1.1 billion. On Thursday, October 19, Attorney General Letitia James filed a suit against Genesis Global, parent company Digital Currency Group (DCG), and close affiliate Gemini.

The central element of the allegation is the partnership program between Gemini and Genesis. The program, called “Gemini Earn”, was billed as a low-risk investment which allowed customers to loan their cryptocurrency to Genesis. Letitia James claims that internal analyses had already flagged up that Genesis was in fact financially unstable, and therefore the investment was not low risk at all. Gemini went on to freeze $900 million of its Gemini Earn customers’ assets in November 2022 and was later sued by the US Securities and Exchange Commission (SEC) for its role in offering securities that were unregistered. The SEC lawsuit was filed in January 2023, and Genesis filed for bankruptcy that same month.

The suit filed by New York State prosecutors accuses Gemini of continuing with the Gemini Earn program despite knowing that Genesis’ own loans were under-secured. It also accuses Gemini of knowing that many of Genesis’ loans were linked to Sam Bankman-Fried’s company, Alameda, which collapsed in November 2022. James argues that despite this knowledge, revealed in an internal analysis which reportedly demoted Genesis’ creditworthiness to “junk” level, the company failed to take appropriate action or communicate the dangers with its investors.

Spokespersons from both DCG and Gemini have denied claims of wrongdoing within their companies. Barry Silbert, CEO for DCG, said that he has always operated under the principles of “honesty and integrity”, and called the claims against him and his firm “baseless”. A statement released by Gemini said the firm looked forward to defending itself in court, referring to itself as the victim of fraud, rather than the perpetrator.

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