Gemini and DCG Sued by New York Law Enforcement! Allegedly Defrauded Users of $1.1 Billion by Not Disclosing Financial Risks

Gemini and DCG, which were indirectly affected by the bankruptcy of 3AC last year, are currently being sued by New York law enforcement agencies. The prosecutors allege that these two companies failed to disclose the risks facing the company to investors, and are suspected of defrauding users of hundreds of millions of dollars.

Gemini and DCG Sued by New York Authorities

According to a report by Bloomberg, Gemini Trust Company and DCG Digital Currency Group, the parent company of Grayscale and Genesis, are being sued by New York authorities for allegedly defrauding customers of $1.1 billion.

New York Attorney General Letitia James on Thursday accused the Gemini exchange and DCG's Genesis Global Capital division of failing to disclose the risks of their crypto lending programs to investors. James stated that Gemini deceived users in its partnership with Genesis regarding risky loans and failed to disclose that nearly 60% of third-party loans were provided to Alameda. Genesis and DCG attempted to conceal increasing asset losses.

In a statement, Letitia James said, "This is another example of bad actors causing harm in the underregulated cryptocurrency industry."

Letitia James further pointed out that Genesis failed to conduct a thorough audit of 3AC Capital, and falsely claimed to Gemini that they were "regularly reviewing the financial condition of their borrowers."

Furthermore, Gemini considered shutting down its Gemini Earn program last July upon detecting financial risks at Genesis, and its COO and risk management personnel withdrew their investments in the Earn program from June to September of last year. However, the program was ultimately not shut down, and warnings about the related risks were not disclosed to investors.

The charges also mentioned a meeting in October last year where Barry Silbert, CEO of DCG, informed Gemini co-founder Cameron Winklevoss of Genesis's need to declare bankruptcy to return Gemini's assets, prompting Gemini to secretly extend Genesis's repayment deadlines multiple times.

In these charges, Letitia James seeks to ban Gemini, Genesis, and DCG from the financial investment industry in New York. She also seeks compensation for investors and the recovery of allegedly ill-gotten gains by these companies.

Gemini and DCG Both Deny the Allegations

Regarding the accusations, DCG denied the claims, stating, "We are surprised by the complaint and there is no evidence to suggest any improper conduct by DCG, Barry Silbert, or its employees."

Gemini, on the other hand, tweeted on Twitter that the allegations by the New York Attorney General confirm that Gemini, Earn program users, and other creditors are victims of a large-scale fraud, as Gemini had filed a lawsuit earlier this year against DCG and Barry Silbert for financial statement fraud.

However, in response to being sued as well, Gemini stated, "The accusations of defrauding victims and making false statements are baseless, and we look forward to defending ourselves against this inconsistent stance."