AG sues crypto firms Gemini and Genesis for fraud

Attorney General Letitia James accused the two cryptocurrency firms of defrauding more than 230,000 investors out of more than $1 billion.

Attorney General Letitia James speaks at the Global Citizen NOW Summit on April 28, 2023.

Attorney General Letitia James speaks at the Global Citizen NOW Summit on April 28, 2023. Noam Galai/Getty Images for Global Citizen

State Attorney General Letitia James filed a lawsuit against similarly-named cryptocurrency companies Gemini and Genesis on Thursday, accusing the companies of defrauding more than 230,000 investors – including nearly 30,000 New Yorkers – of more than $1 billion.

The 230,000 victims of the alleged fraud invested in Gemini, a cryptocurrency company founded by Tyler and Cameron Winklevoss. Gemini offered a product called "Earn," which allowed investors to deposit their cryptocurrency and earn interest – similar to a savings account at a bank, but with much higher interest rates. Gemini then lent customers’ cryptocurrency holdings to the crypto trading firm Genesis, which in turn invested them in extremely risky ways. When the bottom fell out of the cryptocurrency market last year, Genesis’ investments went bust. Genesis could no longer pay back Gemini, which could no longer pay back the ordinary customers who had entrusted it with their life savings.

The attorney general’s lawsuit claims that Genesis lied to Gemini about its financial health – including by hiding the fact that it has lost over a billion dollars and needed to accept a $1.1 billion bailout from its parent company, Digital Currency Group – while Gemini misled its investors by portraying “Earn” as a low-risk investment, even though it knew that lending money to Genesis was very risky. The lawsuit seeks to recover the lost money for customers of Gemini “Earn” and to ban Gemini, Genesis, Digital Currency Group, former Genesis CEO Soichiro Moro and Digital Currency Group CEO Barry Silbert from doing business in New York state.

“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,” James said in a statement. “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. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry.”

By the standards of the cryptocurrency industry, Genesis and Gemini were actually fairly well-regulated. Genesis was one of the few firms to receive a BitLicense from the state Department of Financial Services, which also granted Gemini a limited purpose trust charter under the state’s banking law. The fact that the department gave its seal of approval to two crypto firms that allegedly defrauded investors of over a billion dollars could force a reconsideration of the state’s approach to regulating the cryptocurrency industry.