NY’s Lawsuit Deepens: Alleges $3B Crypto Fraud by Gemini, DCG

New York, February 10, 2024 – The legal battle between New York Attorney General Letitia James and two prominent cryptocurrency firms, Gemini and Digital Currency Group (DCG), has escalated dramatically. In a recent development, James announced the expansion of the state’s complaint against both entities, alleging a staggering $3 billion fraud scheme that purportedly defrauded thousands of investors.

The initial civil lawsuit, filed late last year, sought over $1 billion in restitution. However, the amended complaint now claims an additional $2 billion in damages. This expansion comes as James asserts that Gemini, led by the billionaire Winklevoss twins, and DCG’s Genesis, its crypto lending arm, failed to disclose crucial risks associated with their investment programs.

Gemini Earn, a program offering attractive interest rates of up to 8%, became a focal point of the investigation. Despite purported reassurances from Gemini, internal analysis suggested significant risks, which the company allegedly failed to disclose to investors. As per James, over 230,000 investors have been affected by the alleged fraud, with many additional losses emerging since the initial filing.

Barry Silbert, CEO of DCG, and former Genesis CEO Michael Moro have been named as defendants in the lawsuit. Both entities have vehemently denied the allegations, with Gemini characterizing its inclusion as “blaming a victim for being defrauded and lied to.” In a twist, Gemini had previously sued DCG, alleging accounting fraud and accusing the company, along with Silbert, of deception to conceal liquidity issues at Genesis.

Despite settling its lawsuit with James and agreeing to a bankruptcy restructuring plan, Genesis remains implicated in the amended complaint. The plan, which aims to return assets to former Gemini Earn investors and other creditors, includes the liquidation of Genesis’s assets and the cessation of its operations in New York. DCG has criticized the plan, suggesting it could lead to excessive payouts to customers and impact the ongoing legal proceedings.

The legal saga highlights broader concerns surrounding the regulation of cryptocurrency markets. The collapse of several cryptocurrency firms, including FTX and Three Arrows Capital, has raised questions about investor protection and the oversight of digital asset platforms. Notably, the Securities and Exchange Commission (SEC) also filed a lawsuit against Gemini and Genesis, alleging the sale of unregistered securities through the Gemini Earn program.

The personal fortunes of the key figures involved add another layer of intrigue to the case. The Winklevoss twins, each worth an estimated $1.4 billion, face significant scrutiny over their role in Gemini’s operations. Silbert, once valued at $3.2 billion, saw his fortunes decline amid mounting debts at DCG, leading to his exclusion from Forbes’ billionaire rankings.

As the legal proceedings unfold, stakeholders closely watch the outcome, which could have far-reaching implications for the cryptocurrency industry. The case underscores the urgent need for robust regulatory frameworks to safeguard investors and ensure the integrity of emerging financial markets.

In response to queries regarding the lawsuit, representatives from Gemini and DCG reiterated their commitment to cooperating with authorities while vigorously defending against the allegations. They emphasized their dedication to transparency and compliance with regulatory standards, expressing confidence in their legal position.

With the amended complaint now filed, all eyes turn to the judiciary, where the merits of the case will be scrutinized in detail. The outcome could set precedents for future legal battles in the rapidly evolving landscape of digital finance, shaping the trajectory of cryptocurrency regulation for years to come.