[NEWS] New York Attorney General files lawsuit against Gemini and others for alleged investor fraud

On the 19th, New York Attorney General Letitia James filed a lawsuit against Gemini, a cryptocurrency exchange operator, DCG (Digital Currency Group), a cryptocurrency conglomerate, and Genesis Global Capital, a cryptocurrency lending company that is a subsidiary of DCG.

The lawsuit claims that Gemini defrauded a total of 230,000 investors, including 29,000 New Yorkers. The total amount of damage is said to be more than $1 billion (approximately 150 billion yen).

According to an investigation by the OAG (New York State Attorney General's Office), it was found that Gemini misled investors about Gemini Earn, an investment service that it operated in collaboration with Genesis.

Gemini was aware that Genesis' financial situation was in a precarious state, but concealed the fact and repeatedly assured investors that investments through Gemini Earn were low-risk.

According to the lawsuit, Gemini also knew that Genesis' loans were under-collateralized. In February of last year, one year after Gemini Earn's service began, the company revised Genesis' credit rating from BBB (investment grade) to CCC (junk bond), but did not publicly disclose this information to investors and continued to promote Gemini Earn as a low-risk investment product.

The reason why Genesis was under-collateralized was that it concentrated its investments in Alameda Research, a company affiliated with the collapsed cryptocurrency exchange FTX led by defendant Sam Bankman-Fried.

However, it is said that this fact was also concealed from investors. Alameda Research had received approximately 60% of Genesis' loans to third parties.

The suit also accused Genesis' former CEO Soichiro Moro and parent company DCG CEO Barry Silbert of concealing information and misleading investors and the public, resulting in losses of more than $1.1 billion. As a result of misleading statements and deception, thousands of investors lost millions of dollars, and in some cases lost life savings.

The suit alleges that Genesis failed to properly audit its borrower, 3AC (Three Arrows Capital). Genesis also misrepresented to Gemini that it regularly reviewed the financial statements of its borrowers.

The OAG found that Genesis had not received audited financial statements from 3AC for more than two years. Genesis, DCG and their senior executives also concealed Genesis' financial condition from investors and the public.

To conceal the losses, DCG and Genesis entered into a $1.1 billion promissory note. DCG agreed to lend Genesis $1.1 billion over 10 years at a 1% interest rate. But the promissory notes concealed from Gemini Earn users the dire state of Genesis's finances and operations.

Through this lawsuit, Attorney General James said he would "bar Gemini, DCG and Genesis from New York's financial services industry, and strip them of all restitution to investors and ill-gotten gains."

Source: Announcement
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