U.S. prosecutors have leveled allegations against three prominent crypto currency companies for defrauding investors of over $1 billion.

According to the New York Attorney General, Letitia James, Gemini, a crypto currency exchange, deceived its customers about the risks associated with an investment account that promised high interest rates on crypto currencies.

Furthermore, Genesis, a crypto currency lending platform, and its parent company, Digital Currency Group, were implicated in the scheme, which was terminated in November, leaving customers unable to access their funds.

This event followed closely on the heels of the collapse of FTX, a crypto currency exchange operated by Sam Bank man-Fried, who is currently facing his own fraud charges.

Genesis, which had extended significant loans to Bankman-Fried’s enterprises, subsequently filed for bankruptcy.

Attorney General James remarked that this case exemplifies “another instance of unscrupulous actors causing damage within the loosely regulated crypto currency sector.”

Both Digital Currency Group (DCG) and Gemini have declared their intention to contest these accusations. DCG’s founder, Barry Silbert, emphasized his commitment to honesty and integrity and dismissed the allegations as groundless.

This legal action is the latest development stemming from the tumultuous events within the crypto currency industry in the previous year, as the digital currency markets underwent significant turbulence.

The three entities collaborated on the Gemini Earn program, launched in 2021, permitting users to lend their crypto currencies to Genesis in exchange for interest rates exceeding 7%.

The lawsuit alleges that Gemini was aware of Genesis’s financial instability right from the program’s inception but failed to inform customers about the associated risks, instead asserting that thorough vetting had been conducted.

The risks escalated in June 2022 when Genesis suffered losses exceeding $1 billion due to the collapse of another crypto currency firm.

Prosecutors claimed that Genesis and DCG attempted to obscure this situation through financial maneuvers and false reports, even while publicly asserting the strength of their balance sheet.

Genesis and DCG were already facing fraud accusations regarding these actions from Gemini, a crypto currency exchange founded by the Winkle Voss twins, known for their legal disputes with Mark Zuckerberg over the creation of Facebook.
Gemini stated that the lawsuit reinforced its allegations against Genesis and expressed disagreement with being named as a defendant as well. In a statement shared on social media, they argued that holding the victim responsible for being defrauded and misled was illogical and expressed their readiness to defend against this inconsistent position.

The lawsuit revealed that during the summer of 2022, several senior Gemini staff members grew concerned enough to withdraw their own funds.

Attorney General James underscored that these crypto currency companies deceived investors and attempted to conceal over a billion dollars in losses, with middle-class investors suffering the consequences.

She cited the case of a 73-year-old retired grandmother among the 232,000 investors who were allegedly victimized by this fraud.

Last Updated: 20 October 2023