NY Attorney Sues Gemini Genesis for Alleged Misrepresentation of Investor Risks

A New York attorney has sued Genesis and Gemini Trust for defrauding investors of more than $1.1 billion.

The attorney is seeking restitution for the defrauded investors as well as disgorgement for their ill-gotten profits.

The United States may ban Gemini Trust, Genesis Global and Digital Currency Group from operating in the financial investment industry.

Keywords: Lawsuit, crypto fraud, investor risks, crypto banned, crypto scam, crypto law, crypto crime, defrauded investors, crypto firms, lawsuit against crypto companies, crypto business

Introduction

The effects of FTX collapse is noticeable in some sectors of the crypto economy as some firms still face legal battles related to that. Apart from the on-going trial of Sam Bankman-Fried, the founder of FTX, there is a lawsuit against crypto companies like Gemini and Genesis. In this post, we discuss the lawsuit against Gemini and Genesis.

Read also: FTX’s collapse Affected a Wide Cross section of the Crypto Ecosystem

New York Attorney Sues Gemini and Genesis

General Letitia James, a New York Attorney, has issued a lawsuit against crypto companies, Gemini Trust, Genesis Global and Digital Currency Group (DCG), for allegedly defrauding at least 230,000 investors who include more than 29,000 New Yorkers, of over $1 billion.

James is seeking restitution for the defrauded investors, disgorgement of ill-gotten gains and a ban of these firms from operating in the financial investment sector. Basically, Gemini and Genesis, a DCG-owned firm, offered a crypto lending program without instituting effective risk management measures.

Before delving deeper into the allegations let’s first understand the background of these financial investment firms.

Overview of Gemini Trust, Genesis Global and Digital Currency Group

The Digital Currency Group, founded by Barry Silbert, is a venture capital firm that has several subsidiaries including Genesis Global Trading, Inc. a company established in 2013. This group also owns other firms such as Coindesk.

On the other hand, Genesis consists of several entities that provide lending, trading and custody digital assets services to institutional customers and high-net-worth business people and other renowned individuals.

Some of the businesses which Genesis own include GGC International Limited (GGCI), Genesis Custody Limited, Genesis Global Trading, Inc. (GGT), Genesis Asia Pacific Pte. Ltd. (GAP) and Genesis Global Capital, LLC (GGC).

On the other hand, Gemini Trust Company, LLC, popularly known as Gemini, founded in 2014, is a United States based cryptocurrency exchange and custodian bank. As an exchange it allows investors to buy and sell different digital assets which include cryptocurrencies.

Read also: How to Buy Gemini Dollar (GUSD) - HODL or Trade Crypto

The Lawsuits against Gemini and Genesis

The Attorney James’ lawsuit centres around an investment program which the crypto firms Gemini and Genesis ran known as “Gemini Earn” that enabled investors to lend their cryptocurrencies like Bitcoin and ETH to Genesis and get returns for that.

Read also: Why People think SEC is Indecisive on Which Crypto Assets are Securities

Allegations against Gemini

Gemini, owned by the Winklevoss twins, positioned the program as a low risk investment although its internal analyses indicated that it was high risk. What increased the investment program’s risk was the fact that it was under-secured.

Notably, Gemini’s risk assessment and control measures were also very poor. For instance, Gemini did not inform the Gemini Earn investors of the loan it extended to Alameda Research, which at one time was about 60% of the entire investment fund. According to attorney James, Gemini misrepresented the information to the investors.

The allegation, therefore, stated that Gemini took advantage of the unregulated crypto sector in the United States to exploit investors thereby defrauding them. Also, the false promise which Gemini made to the investors amounted to a crypto crime. This is because Gemini assured the investors that Gemini Earn was a low risk investment program, meaning that they were unlikely to lose their capital.

Part of the lawsuit also charges Genesis, Barry Silbert, DCG’s CEO, Soichiro Moro, a former Genesis CEO and the Digital Currency Group for defrauding the public and the investors by attempting to conceal $1.1 billion losses it incurred. Therefore, the scheme operated like a crypto scam.

Read also: Cryptocurrency Scams Spread Further into America Heartland

New York Attorney Charges Genesis and DCG of Crypto Fraud

The New York attorney also said that DCG and Genesis failed to comply with the country’s crypto law since it did not inform the defrauded investors about the risk associated with investing in the Gemini Earn program. As such, they failed to protect the investors and the public from undue financial losses.

Similarly, the lawsuit alleges that the two crypto firms failed to reduce investor risks through careful auditing of the borrowers’ financial statuses. For example, Genesis did not get audited financial statements from Three Arrows Capital within two years. Genesis, also, concealed its true financial position to Gemini which exacerbated the losses the investors incurred.

The attorney has been bitter about how such crypto businesses defrauded the investors. He said, “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.”

He added, “Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn. Instead, Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses.”

As a result of such gross financial negligence, Attorney General James is fighting to ensure that Gemini, Genesis, and DCG are banned from operating in the financial investment industry in New York. He also asked the court to grant restitution for investors as well as seeking disgorgement for their ill-gotten profits.

What’s next for Gemini if banned in the United States?

If Gemini is “crypto banned” in the United States it is likely to relocate to countries whose cryptocurrency markets are expanding. As per recent reports, the crypto firm aims to establish its business in the United Kingdom, Singapore, Hong Kong and India, among others. As we already know, Singapore and Hong Kong are willing to have more crypto investment businesses.

Read also: How are cryptocurrencies currently regulated in different countries

How the Outcome of the Lawsuit against Gemini and Genesis Affect Future Crypto Regulations?

The outcome of the Gemini-Genesis Court case is likely to affect the entire crypto sector in the United States. In broad terms, the various regulatory authorities in the United States like the SEC may take extra measures to protect the investors.

Read aslo: Cryptocurrency laws in United States and other countries

As an example, the case of Gemini and Genesis may motivate the SEC to be critical about the approval of investment assets like crypto exchange traded funds (ETFs) since it would need to verify that such products are safe to the investors.

Also, the regulatory authorities may include stringent penalties as part of the crypto law in the country. It may also ensure long term jail sentences for such offenders with the aim of preventing future crypto scams and crimes.

Interested parties such as lobby groups may cite such cases when proposing new crypto laws aimed at protecting investors and the public. Attorney James, for instance, has promised to use such incidents to push for stiffer crypto regulations in the future.

Recently, he said, “My office will continue our efforts to stop deceptive cryptocurrency companies and to push for stronger regulations to protect all investors.”

Conclusion

New York attorney James filed lawsuits against three crypto firms for defrauding crypto investors. One of the lawsuits claims that both Gemini and Genesis misrepresented information to the public and investors. As a result, he is pushing for a suitable restitution and disgorgement for their ill-gotten profits.