US prosecutors in New York have accused three prominent Bitcoin and cryptocurrency firms of bilking investors out of almost $1 billion.
Attorney General Letitia James of New York said that Gemini, a cryptocurrency exchange that touted significant returns on investments in bitcoin and other cryptocurrencies, had misled its customers about the nature and extent of the associated dangers.
Digital Currency Group, the parent firm of cryptocurrency lender Genesis, also participated in the initiative. In November of last year, it was shut down, leaving customers unable to access their money.
It followed the failure of another cryptocurrency exchange, FTX, whose CEO, Sam Bankman-Fried, is now facing fraud accusations of his own.
A few months later, Genesis filed for bankruptcy after making numerous large loans to his businesses.
She was a “another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” as Attorney General James put it. Both Digital Currency Group (DCG) and Gemini have stated their intent to challenge the allegations.
“Honesty and integrity have always been my guiding principles,” DCG founder Barry Silbert said in response to the “baseless” charges.
This lawsuit is the most recent fallout from the crypto industry’s crash last year, when digital currency markets turned sour.
In 2021, the three businesses released Gemini Earn, a service that encouraged customers to lend cryptocurrency to Genesis in exchange for interest rates of over 7%.
Prosecutors claim in their lawsuit that Gemini knew Genesis’ finances were precarious from the beginning of the initiative.
The lawsuit claimed that Gemini misrepresented the company’s vetting process and failed to warn customers about the risks associated with financing to the company.
When Genesis lost over $1 billion due to the failure of another cryptocurrency company in June 2022, the danger level skyrocketed.
While publicly maintaining that its balance sheet was good, prosecutors said Genesis and DCG tried to cover up the problem by financial manipulation and misleading reporting, including to Gemini.
Already, Gemini, a crypto exchange created by the Winklevoss twins—famous for alleging that their former Harvard classmate Mark Zuckerberg stole their idea to invent Facebook—had levelled fraud allegations against Genesis and DCG for their work in this area.
Gemini stated that the lawsuit validated its accusations against Genesis and that it did not agree with its inclusion in the complaint.
Sharing a statement saying, “Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position,” the company said it would do on social media.
However, the lawsuit claims that by the summer of 2022, a number of senior Gemini employees had been anxious enough to remove personal 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,” James stated.
She mentioned a 73-year-old grandma who invested money as one of the 232,000 people who lost money in the scam.