The New York AG office filed a lawsuit against three prominent digital asset firms, Gemini Trust, Genesis Global Capital, and Digital Currency Group, the parent company of Genesis.
The lawsuit alleges these companies misled investors and concealed over $1 billion in losses.
The investigation revealed that Gemini, founded by Cameron and Tyler Winklevoss, misled investors about the risks associated with its lending service, Gemini Earn, which operated in conjunction with Genesis.
Gemini Earn promised low-risk investments, allowing customers to lend their crypto assets to Genesis in exchange for interest payments as high as 8%.
However, the lawsuit claims this service was less safe than advertised.
New York Attorney General Letitia James expressed her concern, stating, “These cryptocurrency companies lied to investors, and it was middle-class investors who suffered as a result.”
Approximately of New Yorkers were among the 230,000 investors who experienced losses.
The legal action is part of a broader effort by US officials to regulate the trillion-dollar cryptocurrency industry more rigorously.
The industry has long operated with limited oversight, leading to concerns about investor protection and market stability.
Gemini’s owners, the Winklevoss twins, have asserted that Genesis owed over $900 million to around 340,000 customers using the Earn program.
The lawsuit also names former Genesis CEO Soichiro “Michael” Moro and Digital Currency Group CEO Barry Silbert.
The legal action follows a separate lawsuit filed by the Securities and Exchange Commission (SEC) in January, alleging that Genesis and Gemini offered unregistered securities through the Earn product.
In response to the lawsuit, Gemini released a statement asserting that they, along with their customers, were the victims of a “massive fraud” perpetrated by Genesis.
The company strongly disagrees with the allegations, emphasizing that they were deceived and look forward to defending themselves in court.
A spokesperson for Genesis, in response to the lawsuit, stated that they have been cooperating with authorities, maintaining that they have not violated any laws and continue to focus on maximizing recoveries for creditors in their Chapter 11 cases.
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