NYAG Sues Genesis, Gemini, and Digital Currency Group

Reading Time: 2 minutes
  • The New York Attorney General’s office has sued Genesis Global Capital, Gemini Trust, and Digital Currency Group
  • Laetitia James alleges that the companies and some of their executives operated fraudulent schemes that in over $1 billion in customer losses.
  • DCG CEO Barry Silbert has said he intends to fight the charges

The New York Attorney General’s office has initiated legal action against Genesis Global Capital, Gemini Trust, and Digital Currency Group (DCG), along with both current and former executives. The allegations revolve around two purported fraudulent schemes, named the “Gemini Scheme” and the “DCG Scheme,” with the two companies accused of misrepresentation or creditworthiness and financial concealment respectively. Former Genesis CEO Michael Moro and DCG’s CEO Barry Silbert are also individually named in the suit, which alleges that the entities defrauded a combined 232,000 customers for over $1 billion.

Gemini ‘Knew’ Genesis Loans Were Risky

New York Attorney General Laetitia Adams announced the lawsuit yesterday, alleging that the two 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.”

An investigation by her office found that Gemini lied to investors about its investment program, Gemini Earn, which she said repeatedly assured investors was a low-risk investment. However, her office’s internal analysis of Genesis showed that the company’s financials were much riskier than the company let on; as a result, she alleges that Gemini knew Genesis’ loans were undersecured and at one point highly concentrated with one entity, Alameda Research, but did not reveal this information to investors.

The Gemini Scheme also allegedly misrepresented the creditworthiness of Genesis Global when enticing users into its Earn program, with James suggesting that Gemini made misleading claims about Genesis Capital, despite internal risk analyses rating it as junk grade rather than investment grade.

James: DCG Concealed $1 Billion in Deficits

The DCG Scheme centers on Genesis Capital’s financial state concealment, with more than $1 billion in deficits following the bankruptcy of Three Arrows Capital, the Singapore-based hedge fund that went bust in June 2022. The lawsuit also accuses Genesis of failing to adequately audit Three Arrows Capital, which would have alerted it to the hedge fund’s deficiencies. 

In addition, Genesis allegedly lied to Gemini when it claimed to regularly review its borrowers’ financial statements, with James’ office finding that Genesis had not received audited financial statements from Three Arrows Capital for more than two years. Genesis is owned by DCG, and Moro, Silbert, and DCG are accused of falsely representing Genesis Capital’s financial condition.

Barry Silbert defended his actions to Decrypt, saying that he was “shocked by the baseless allegations in the Attorney General’s complaint” which he intends to fight, adding, “Last year, my and DCG’s goal was to help Genesis weather the storm caused by the collapse of Three Arrows and position Genesis for success going forward. It is unfortunate that this lawsuit omits that fundamental fact.”