New York State Attorney’s Office filed a lawsuit against Gemini, Genesis, Digital Currency Group (DCG) and company executives alleging they defrauded more than 230,000 investors out of over $1 billion.
According to the investigation, Gemini lied to users regarding the Earn staking program, which it implemented jointly with Genesis. The Winklevoss brothers’ company has repeatedly assured investors that the product is low-risk.
Gemini transferred the funds raised through Earn to Genesis, which used them to issue loans to Three Arrows Capital and Alameda Research.
Gemini knew that Genesis’ loans were undersecured and that the lender’s financial performance was unsatisfactory, but hid this from investors, law enforcement officials say.
Genesis, its former CEO Shichiro Moro, parent company DCG and its CEO Barry Silbert are accused of fraudulently concealing more than $1.1 billion in losses suffered by investors.
The crypto lending platform lost most of this amount due to the bankruptcy of Three Arrows Capital in June 2022. As a result of problems with another client, Babel Finance, Genesis lost another $100 million.
According to the investigation, the company did not conduct a proper audit of the financial condition of the borrowers. Additionally, the platform misled Gemini about regularly monitoring loan collateral. In fact, for example, the firm did not receive reports from Three Arrows Capital for more than two years.
The management of the DCG structures entered into a conspiracy and tried to hide the losses incurred from the Winklevoss company, Earn investors and the community. The parent company agreed to issue a $1.1 billion note to Genesis with a ten-year maturity and an annual interest rate of 1%. The debt obligations became part of a deception scheme, the prosecutor’s office said.
Genesis, following the liquidation of Three Arrows Capital, repeatedly provided Gemini with false balance sheet statements, including the amount of the note as current assets. This was a deliberate lie, since this category includes funds that can be converted into money and their equivalents within a year, law enforcement officers emphasized.
Prosecutors asked the court to bar the defendants from engaging in any securities trading business in the state, order them to compensate investors for their losses and return their ill-gotten gains.
In September, Genesis filed a lawsuit against DCG, demanding that the parent company repay loans totaling more than $600 million.
Source: Cryptocurrency
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