June 23, 2024

New York Attorney General Expands Lawsuit, Alleging $3 Billion Crypto Fraud Scheme


New York Attorney General Letitia James has expanded her lawsuit against Digital Currency Group (DCG) and other cryptocurrency defendants, alleging a fraud scheme that has now tripled in size to over $3 billion. The initial lawsuit in October targeted DCG, its Genesis Global Capital unit, and Gemini Trust, the exchange led by Cameron and Tyler Winklevoss.

The lawsuit revolves around the Gemini Earn program, which allegedly caused over $1 billion in losses by misleading investors. The program allowed customers to lend crypto assets to Genesis in exchange for a high return. The expanded complaint reveals that the fraud also impacted investors who sent money directly to Genesis, falsely assured that their funds were secure.

Among the new investors affected are retail customers, including a chiropractor and a stay-at-home father, each investing $2 million of bitcoin with Genesis. Attorney General James is now seeking over $3 billion in restitution for the more than 230,000 investors believed to be defrauded.

“This illegal cryptocurrency scheme, and the horrific financial losses that real people have suffered, are yet another reminder of why stronger cryptocurrency regulations are needed to protect all investors,” said Letitia James in a statement.

DCG responded, calling the lawsuit “baseless” and expressing confidence in winning in court. The company stated, “DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated.”

Genesis, facing bankruptcy since January 2023, reached a settlement with the Attorney General’s office, agreeing to pay on the fraud claims as long as it repays customers through the Chapter 11 process. This settlement is pending approval from a bankruptcy judge.

Barry Silbert, DCG’s CEO, and Soichiro Moro, a former Genesis CEO, are named as defendants in the lawsuit. Genesis filed for bankruptcy after halting withdrawals by Gemini Earn customers following the collapse of FTX cryptocurrency exchange. Both Genesis and Gemini were also sued by the U.S. Securities and Exchange Commission for allegedly bypassing disclosure requirements.

Last week, Genesis agreed to pay the SEC a $21 million fine, contingent on repaying customers first. Meanwhile, Gemini has filed a lawsuit against DCG over the failure of their crypto lending partnership. Representatives for DCG and Gemini have not immediately responded to requests for comment.

Financial Desk

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