New York Attorney General Sues Crypto Firms in $1 Billion Fraud Case

New York Attorney General Sues Crypto Firms in $1 Billion Fraud Case

Continuing the crackdown on cryptocurrency companies, the New York Attorney General accused three major players in the digital asset industry of lying to investors and hiding losses in a $1 billion fraud scheme. According to a lawsuit Filed on Thursday.

The lawsuit targets Gemini Trust, an exchange run by twin brothers Tyler and Cameron Winklevoss; lender Genesis Capital; and Digital Currency Group, parent company of Genesis.

The Attorney General, Letitia James, argued in the lawsuit that Gemini lied to investors about the dangers of Gemini Earn, a program launched by Gemini and Genesis that promised investors high rates of return – up to 8 percent – If they essentially lend their cryptocurrency to Origin.

But Genesis struggled after the implosion last November of the FTX cryptocurrency exchange founded by Sam Bankman Fried. It froze accounts amid a collapse in digital asset values, leaving Earn investors unable to withdraw millions of dollars worth of cryptocurrency.

According to Ms. James’s lawsuit, Gemini’s internal documents show that just months after the 2021 earnings launch, the company’s risk analysis teams deemed Genesis too risky – highly leveraged with limited liquidity. Gemini also knew that Genesis loans were once tied up in Alameda Research, a now-bankrupt crypto hedge fund also founded by Mr. Bankman-Fried, who is now being prosecuted on criminal fraud charges.

But Gemini did not share the information with investors, Ms. James said, leaving at least 29,000 New Yorkers and hundreds of thousands of others across the country in the dark about the risks to their assets.

The lawsuit accuses Genesis and Digital Currency Group of trying to hide Genesis’ losses from Gemini Earn investors and the public. Both companies concealed financial troubles last year when Genesis signed a $1.1 billion, 10-year promissory note with the digital currency, a deal intended to give the false impression that Genesis was in a strong position and allow investors to earn money. To be encouraged to participate. program, according to the lawsuit.

“This fraud is yet another example of the bad actors wreaking havoc on the entire under-regulated cryptocurrency industry,” Ms. James said in a statement. “My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.”

Former Genesis chief executive Soichiro Moro and digital currency chief executive Barry Silbert were also named in the lawsuit.

Gemini responded with a post on social media platform praised and condemned trial. The company said, “The filing confirms what we have said all along – that Gemini Earn users and other creditors were the victims of a massive fraud and systematic misappropriation by these parties regarding ‘Genesis’ financial condition. Was ‘lied’ to.” But it “completely” disagreed with the decision to name Gemini in the lawsuit: “It makes no sense to blame the victim for fraud and lying,” it said.

Genesis and Digital Currency Group did not immediately respond to requests for comment.

This is not the companies’ first lawsuit arising from Gemini Earn. The Securities and Exchange Commission in January accused Gemini and Genesis of offering unregistered securities, raising billions of dollars of digital assets from hundreds of thousands of investors without required disclosures. Gemini also faces several proposed class-action lawsuits from investors in Earn.

Ms James is seeking to bar Gemini, Genesis and Digital Currency Group from operating in the financial investment industry or conducting any business related to the sale and purchase of securities in New York. She is also demanding compensation for the losses of investors.

The lawsuit follows other recent efforts by the Attorney General’s Office to regulate the crypto industry. In May, Ms. James proposed legislation It would require public audits of crypto exchanges, limit conflicts of interest by banning certain ownership arrangements, create safeguards to prevent fraud and compensate victims, and strengthen oversight of the digital asset industry.

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