- Gemini lied about the risks of its investment program Gemini Earn
- Gemini’s internal risk analyses revealed Genesis’ loans were high-risk
- Three Arrows Capital defaulted on billions in loans from Genesis in 2022
New York Attorney General Letitia James announced a large-scale lawsuit against cryptocurrency companies Genesis Global and its affiliates, Gemini Trust Company, and Digital Currency Group (DCG) for defrauding almost a quarter of a million investors of more than $1 billion.
An investigation by the Office of the Attorney General (OAG) found that Gemini lied about its investment program Gemini Earn, which it operated with Genesis. While Gemini assured investors the program was not risky, this was not the case. According to the OAG, Gemini knew Genesis’ loans were not sufficiently secured and that they were concentrated with Alameda Research at one point.
Genesis and DCG concealed losses of $1.1B+
Genesis and its parent company DCG are also charged with defrauding the public and investors by trying to hide losses in excess of $1.1 billion, which investors bore. Thousands of people lost millions of dollars.
The Attorney General wants to ban DCG, Gemini, and Genesis from the New York financial investment industry. She also wants restitution for investors and filed for disgorgement of ill-gotten gains.
Doctored risk analysis
The Attorney General alleges Gemini’s internal risk analyses revealed Genesis’ loans were high-risk because they had been concentrated in a small number of recipients since the Gemini Earn program started in February 2021. Gemini’s board even considered ending Earn in July 2022 because of the risks Genesis brought in.
3AC defaulted on billions in 2022
Now-defunct Three Arrows Capital defaulted on billions in loans in 2022. Genesis also lost more than $100 million from Babel Finance, another borrower. Genesis lost more than $1.1 billion in total. According to the AG, Genesis failed to adequately audit 3AC.
Genesis concealed its financial condition
DCG and Genesis also tried to hide Genesis’ true financial state from Gemini, its investors, and the public. To do so, they entered into a promissory note worth $1.1 billion. DCG agreed to pay Genesis this amount at 1% interest in a decade.
According to the lawsuit, the promissory note was part of a plan to defraud investors in Gemini Earn. In July this year, Gemini announced a lawsuit against DCG and its CEO Barry Silbert for committing fraud.
