In a significant legal development, New York Attorney General Letitia James has filed a lawsuit against cryptocurrency companies Genesis Global, its parent entity Digital Currency Group (DCG), and Gemini, accusing them of defrauding investors of over $1 billion. DCG, which owns the South African cryptocurrency exchange Luno, finds itself entangled in this lawsuit. This case highlights the persistent challenges faced by the crypto industry, following the aftermath of the FTX exchange bankruptcy led by Sam Bankman-Fried almost a year ago. The consequences of this event rippled across the sector, affecting several major firms.
Attorney General James aims to secure restitution for investors and the disgorgement of ill-gotten gains through the lawsuit. Additionally, she seeks a ban on all three cryptocurrency firms from participating in the financial investment industry in New York.
At the core of the lawsuit is a program called “Gemini Earn,” a joint venture between Gemini and Genesis. This initiative allowed customers to lend crypto assets, including bitcoin, to Genesis. Despite billing the program as a “low-risk investment,” Gemini allegedly failed to disclose that their internal analyses had identified Genesis as financially precarious. Notably, Genesis’ loans were reportedly undersecured and highly concentrated with Alameda, Bankman-Fried’s crypto hedge fund that eventually went bankrupt. This critical information was allegedly concealed from investors participating in Gemini Earn, according to James.
Gemini, founded by the Winklevoss twins known for their legal battles against Meta Platforms’ Mark Zuckerberg, responded to the lawsuit on messaging platform X, asserting that it confirms their longstanding claims. However, the company disagreed with the decision to sue Gemini itself.
The conflict between Genesis and Gemini has escalated over the past few months, particularly concerning the Gemini Earn program. Gemini also holds the position of the largest creditor of Genesis, which filed for bankruptcy protection in January. This lawsuit adds another layer of complexity to the ongoing disputes within the cryptocurrency industry, raising questions about transparency, investor protection, and the sector’s overall regulatory framework.