20-10-2023 (NEW YORK) Three prominent cryptocurrency companies have been accused by US prosecutors of defrauding investors of over $1 billion. The New York Attorney General, Letitia James, revealed that Gemini, a crypto exchange, had deceived customers regarding the risks associated with an investment account that offered high interest rates on cryptocurrencies. Genesis, a crypto lender, and its parent company, Digital Currency Group, were also implicated in the scheme, which was abruptly halted in November, leaving customers unable to access their funds. This development follows the recent turmoil in the crypto industry, including the collapse of FTX and fraud charges against its founder, Sam Bankman-Fried.
According to Attorney General James, the case sheds light on the consequences of unregulated practices within the cryptocurrency industry, with bad actors causing harm to investors. Both Digital Currency Group (DCG) and Gemini have vehemently denied the allegations, stating their intention to contest the claims. Barry Silbert, the founder of DCG, emphasized his commitment to honesty and integrity, dismissing the accusations as baseless. The lawsuit represents the latest legal action arising from the challenges faced by the crypto industry, as the market for digital currencies experienced significant volatility in recent years.
The three companies collaborated on a project called Gemini Earn, launched in 2021, which enabled users to lend cryptocurrencies to Genesis in exchange for interest rates exceeding 7%. Prosecutors argue that Gemini was aware of Genesis’ unstable financial situation from the beginning but failed to inform customers about the associated risks. Instead, Gemini claimed to have thoroughly vetted Genesis. In June 2022, Genesis suffered losses exceeding $1 billion due to the collapse of another crypto firm. Prosecutors allege that Genesis and DCG attempted to conceal these losses through financial maneuvers and false reporting, even while publicly asserting the strength of their balance sheet.
Gemini, founded by the Winklevoss twins known for their legal battle with Mark Zuckerberg over the creation of Facebook, expressed agreement with the lawsuit’s claims against Genesis but disagreed with being implicated themselves. In a statement shared on social media, Gemini argued that blaming the victim, in this case, makes no sense and affirmed their determination to defend against the inconsistent position presented in the lawsuit. The lawsuit further revealed that some senior staff at Gemini became concerned about the situation in the summer of 2022 and withdrew their own funds.
Attorney General James emphasized that the alleged fraud had a significant impact on middle-class investors, citing the case of a 73-year-old retired grandmother among the 232,000 victims. The lawsuit not only highlights the need for enhanced regulation in the cryptocurrency industry but also underscores the importance of investor protection and transparency. As the legal battle unfolds, the industry faces scrutiny and potential implications for future regulations.
