New York Attorney General Letitia James has taken legal action against three cryptocurrency companies, accusing them of defrauding more than 230,000 investors and swindling over $1 billion. The companies involved are Gemini Trust Company (Gemini), Genesis Global Capital, LLC and its affiliates (Genesis), and Digital Currency Group, Inc. (DCG).
The lawsuit alleges that Gemini misled investors by promoting a program called Gemini Earn that promised interest on crypto deposits. However, it is claimed that Genesis engaged in lending activities with risky borrowers, contradicting the low-risk image presented by Gemini.
Moreover, the lawsuit highlights Gemini’s failure to disclose the downgraded credit rating of Genesis or their consideration of terminating the program.
Genesis and DCG Tried to Hide Losses of $1.1 Billion
The lawsuit alleges that Genesis and DCG made attempts to gide substantial losses from both investors and the public. In June 2022, one of Genesis’ major borrowers, Three Arrows Capital, defaulted on loans worth billions. Around the same time, another borrower named Babel Finance caused Genesis a loss, exceeding $100 million.
Collectively, Genesis suffered a loss surpassing $1.1 billion. To hide these losses, DCG and Genesis planned a fraudulent promissory note wherein DCG agreed to pay Genesis $1.1 billion over ten years at an interest rate of one percent. The lawsuit contends that this note was part of a scheme aimed at deceiving investors and the general public regarding the financial state of Genesis.
False Statements to Public and Gemini
The lawsuit also accuses Genesis, DCG, and their executives of making false statements to the public and Gemini regarding their financial situation. Just two days after the Three Arrows Capital default, they took to Twitter claiming that:
“Despite continued heightened market volatility, the Genesis balance sheet is strong and our business is operating normally.”
Additionally, they also lied to Gemini’s risk management teams by providing misleading information about their losses and submitting fraudulent reports that misrepresented the promissory note as a current asset.
Attorney General’s Aggressive Stance on Cryptocurrency Regulation
Attorney General James aims to permanently ban Gemini, Genesis, DCG, and their executives from the financial investment industry in New York. Additionally, she is seeking restitution for defrauded investors and disgorgement of ill-gotten profits.
“These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” said Attorney General James.
Attorney General James has recently taken legal action to protect investors from deceptive cryptocurrency companies. In addition, she has unveiled comprehensive cryptocurrency legislation aimed at bolstering industry regulations within New York.
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