On Thursday, New York Attorney General Letitia James filed a lawsuit against three digital asset firms, namely Gemini Trust, Genesis Global Capital and Digital Currency Group (DCG), the parent company of Genesis. The lawsuit alleges that these companies have deceived investors and concealed over $1 billion in losses.
James’ lawsuit came after the Securities and Exchange Commission (SEC) sued Genesis and Gemini in January for selling unregistered securities through the Gemini Earn product.
James revealed that her investigation had uncovered deceptive practices by Gemini, the cryptocurrency company founded by brothers Cameron and Tyler Winklevoss. Gemini misled investors regarding the substantial risks associated with their lending service, Gemini Earn. This program claimed to be a low-risk investment, allowing customers to lend their crypto assets to Genesis and earn interest payments as high as eight percent.
“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 Gemini Earn. Instead, Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” James said.
James emphasized her commitment to continuing efforts to combat deceptive crypto companies and advocate for stronger regulations to protect all investors.
James’ lawsuit is the latest attempt by U.S. officials to regulate the trillion-dollar crypto industry, which has operated with limited oversight compared to traditional financial markets. Advocates for cryptocurrencies argue that regulators have been slow to establish clear guidelines for digital assets, emphasizing the distinctions between them and traditional securities like stocks and bonds.
James mentioned that the fraud committed by Gemini, Genesis and DCG had led to losses of about $1 billion for over 230,000 investors, including at least 29,000 New Yorkers.
Among those impacted was a retired 73-year-old grandmother in New York who invested her and her husband’s life savings of over $199,000 in Gemini Earn. James revealed that they had hoped to use this money for her grandchild’s education but lost it all due to the fraud.
A 56-year-old New Yorker invested $20,500 in Gemini Earn and lost most of his savings. He trusted Gemini Earn’s claims and chose it over other interest-bearing cryptocurrency investments.
In James’ lawsuit, it is claimed that Gemini was aware of the risks associated with Genesis’ loans, which were “highly concentrated” concentrated with FTX CEO Sam Bankman-Fried’s crypto trading company, Alameda Research. Bankman-Fried is currently on trial in a New York federal court, where he has pleaded not guilty to seven counts of fraud and conspiracy.
“Gemini hid the risks of investing with Genesis, and Genesis lied to the public about its losses,” James said.
The Winklevoss twins, owners of Gemini, have disclosed that Genesis owed over $900 million to approximately 340,000 customers in the Earn program.
On Thursday, Gemini responded to James’ lawsuit with a statement on X, emphasizing that Gemini was a victim of a “massive fraud.”
Gemini expressed disagreement with the lawsuit. “Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position,” said Gemini.
A representative from Genesis said that they did not see any basis for the claims made by James but affirmed their commitment to cooperating with all relevant authorities.
“Genesis has not violated the law and continues to focus on maximizing recoveries for creditors in its Chapter 11 cases,” the representative said.
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