Cryptocurrency firms sued in New York over alleged $1bn investor fraud

New York attorney-general Letitia James on Thursday sued cryptocurrency firms Genesis Global, its parent company Digital Currency Group (DCG) and Gemini for allegedly "defrauding investors of more than $1bn".

The development underscores the challenges the crypto industry continues to face almost a year after the bankruptcy of Sam Bankman-Fried’s exchange FTX, which led to a meltdown in the sector that overwhelmed several major firms.

Through the lawsuit, James is seeking restitution for investors and "disgorgement of ill-gotten gains", along with a ban on all the three cryptocurrency firms from the financial investment industry in New York.

At the heart of the lawsuit is a programme that Gemini ran in partnership with Genesis, called "Gemini Earn". The programme allowed customers to lend crypto assets such as bitcoin to Genesis.

Gemini, run by the Winklevoss twins best known for their legal battle against Meta Platforms’ Mark Zuckerberg, had billed the programme as a "low-risk investment" even when its internal analyses had found Genesis was on risky financial footing, James alleged.

Gemini knew Genesis’ loans were undersecured and at one point highly concentrated with one entity, Bankman-Fried’s crypto hedge fund Alameda that later went belly up, James said.

It did not reveal any of this information to the investors of Gemini Earn, she added.

Gemini posted on messaging platform X, formerly known as Twitter, that the lawsuit "confirms what we’ve been saying all along", but disagreed with the decision to also sue Gemini.

Genesis and Gemini have clashed several times over the past few months, including over Gemini Earn. Gemini is also the largest creditor of Genesis, which filed for bankruptcy protection in January.

DCG did not immediately respond to a request for comment.

Reuters