- Three prominent U.S. cryptocurrency companies, Gemini, Genesis, and Digital Currency Group, were charged with defrauding investors.
- Gemini was accused of providing false information about high-interest cryptocurrency investment accounts.
- Allegations of financial manipulation and concealed losses exceeding $1 billion lead to lawsuits and customer harm.
Three prominent cryptocurrency companies in the United States have been charged by prosecutors with defrauding investors of over $1 billion.
According to New York Attorney General Letitia James, Gemini, a cryptocurrency exchange, has been accused of providing false information to customers regarding the risks associated with an investment account that promised high interest rates on cryptocurrencies.
Genesis, a cryptocurrency lending company, along with its parent company Digital Currency Group, were also implicated in the scheme. The operation came to a halt in November, resulting in the suspension of customer access to their funds.
This occurred shortly after the demise of FTX, the cryptocurrency exchange operated by Sam Bankman-Fried, who is currently facing his own legal battle on fraud charges. Genesis, a company that had extended substantial loans to Bankman-Fried’s enterprises, subsequently filed for bankruptcy a few months later.
Attorney General James stated that her case represents “another example of bad actors causing harm throughout the under-regulated cryptocurrency industry”. Additionally, both Digital Currency Group (DCG) and Gemini have expressed their intent to contest the allegations.
“Honesty and integrity have always been my guiding principles,” declared DCG founder Barry Silbert, dismissing the accusations as “baseless.” This legal action is the most recent development stemming from the turmoil in the cryptocurrency industry last year, as digital currency markets faced challenges.
The trio of companies had collaborated on Gemini Earn, a venture introduced in 2021 that permitted users to lend their cryptocurrencies to Genesis in return for interest rates surpassing 7%. According to the lawsuit, prosecutors allege that Gemini was well aware of Genesis’s unstable financial situation right from the inception of the program. However, the lawsuit asserts that Gemini neglected to inform its customers about the potential risks associated with lending to Genesis. Instead, they represented that Genesis had undergone a thorough vetting process.
In June 2022, the risks escalated significantly when Genesis incurred losses exceeding $1 billion due to the collapse of another cryptocurrency firm. Prosecutors claim that Genesis and DCG attempted to conceal this situation through financial maneuvers and by disseminating false reports, even to Gemini, all the while publicly asserting the strength of their balance sheet.
Genesis and DCG had already been confronted with allegations of fraud pertaining to their actions by Gemini, a cryptocurrency exchange established by the Winklevoss twins, who are famously recognized for their assertion that their former Harvard classmate Mark Zuckerberg appropriated their concept to create Facebook.
Gemini maintained that the lawsuit validated its accusations against Genesis and expressed its disagreement with being implicated in the case. In response, Gemini issued a statement on social media, stating, “Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”
However, according to the lawsuit, during the summer of 2022, certain high-ranking personnel at Gemini became concerned enough to withdraw their own funds. “These cryptocurrency 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,” Attorney General James remarked. She pointed to a 73-year-old retired grandmother as an example, one of the 232,000 investors allegedly victimized by the fraud.
