Crypto firms Digital Currency Group and Gemini defrauded more than 230,000 investors out of a collective $1.1 billion, New York state prosecutors said in a lawsuit filed in Manhattan Thursday. They reportedly cited a series of missteps, including failure to adequately manage the risk associated with exposure to Sam Bankman-Fried’s bankrupt and allegedly fraudulent crypto trading firm.
Genesis, a crypto lender, and its parent company Digital Currency Group were also involved in the programme. It was halted last November, cutting off customer access to funds.
Genesis, which had loaned heavily to his companies, filed for bankruptcy a few months later. Attorney General James said her case concerned “another example of bad actors causing harm throughout the under-regulated cryptocurrency industry”. Digital Currency Group (DCG) and Gemini each said they would fight the claims.
The attorney accused cryptocurrency companies of losing over $1 billion of investors’ funds. James said, “My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.”
The lawsuit states that these companies deceived clients into investing in a program known as Gemini Earn, fraudly promoting it as low-risk with high returns. According to media reports, the Gemini Earn program was run by Gemini and Genesis while around 232,000 of Gemini Earn investors had their accounts frozen by Gemini and Genesis, the lawsuit alleged, with some investors even losing their life savings.
Eventually, Genesis declared bankruptcy in January with the Winklevoss twins withdrawing around $280 million months before suspecting distress over the fund. It also stated that the customers were unable to withdraw their funds as deposits were frozen in November 2022.
One of Genesis’s biggest counterparties was Sam Bankman-Fried’s trading firm Alameda Research. By extension, prosecutors say that Gemini also had exposure to Alameda, and allegedly knew they did.
New York prosecutors in the same suit accused Gemini of failing to address the “risky” exposure it had to Bankman-Fried’s Alameda Research, through its relationship with Genesis.
Lawsuits against other crypto platforms including CoinEx, Coin Cafe, KuCoin, Nexo and Celsius were also filed by The New York AG that failed to register as securities companies and defrauded investors, reported The Messenger
