- New York Attorney General Letitia James has sued Gemini, Genesis and DCG for defrauding investors.
- This lawsuit compounds the firms’ woes considering an earlier SEC suit filed against them over Gemini’s Earn product.
New York State Attorney General (AG) Letitia James has accused Gemini, Genesis, and Digital Currency Group (DCG) of misleading and defrauding 230,000 Americans of a total loss of $1.1 billion. Specifically, the civil lawsuit is related to Gemini Earn, an investment product that was marketed to customers as a safe and secure way to earn interest on cryptocurrencies, up to 8%.
Based on the investigation, it was discovered that Gemini Exchange which is run by the Winklevoss twins, Cameron and Tyler, lied to investors about the risks involved in investing in the Earn program. In addition, the assets contributed by Gemini customers were pooled together and given to Digital Currency Group’s crypto lending subsidiary Genesis.
Subsequently, Genesis gave out these funds to large institutions and only returned a fraction of the profit.
James found out that at a certain point in time, these Genesis loans were even underscored and high-risk. It was concentrated among some third parties including Alameda Research, the trading firm associated with the now-defunct cryptocurrency exchange FTX. The trading firm was said to constitute up to 60% of Genesis loan documents. This meant that any shortcoming from Genesis creditors in terms of fulfilling their debts would result in a loss of funds for Gemini.
Genesis and DCG Misled Customers
It wasn’t long after that Genesis got caught in the web of the FTX implosion which happened in November last year. On November 16th, Genesis announced that it was suspending withdrawals and new loan origination on its platform, citing its contagion to the collapsed FTX exchange which had given rise to some unusual market activities.
Genesis claimed that it had run into a liquidity shortage due to the market’s volatility and funds locked in FTX.
Two months later, Genesis filed for bankruptcy protection, making it difficult for Gemini Earn customers to access their $900 million fund. In the heat of the moment, Gemini co-founder Cameron Winklevoss requested that DCG’s Chief Executive Officer (CEO) Barry Silbert step down from his position in the company as he had failed to live up to their agreement.
Around this time, the United States Securities and Exchange Commission (SEC) sued both Genesis and Genesis for violating federal securities laws through the Gemini Earn program. It was in this filing that the SEC highlighted that the reduction in the returns made by Genesis to Gemini Earn program investors was as high as 4.2%. The current charges brought by AG James have a broader scope than that of the SEC.
Genesis and DCG have been accused of failing to assess the quality of the loans that the former meted out. They had also attempted to conceal the losses incurred from their miscalculated action. The CEOs of both companies are equally defendants in the lawsuit for misleading the public about the financial health status of Genesis.
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