Temasek lost hundreds of millions investing in FTX.
The lawsuit accuses Gemini and DCG’s Genesis Global Capital unit of failing to disclose to investors the risks of a crypto lending programme they started in 2021. PHOTO: REUTERS
Oct 20, 2023
NEW YORK – Gemini Trust and Digital Currency Group (DCG) are being sued by New York’s top law-enforcement officer for allegedly defrauding customers of US$1.1 billion (S$1.5 billion), escalating legal woes for two companies hit hard by 2022’s plunge in cryptocurrency markets.
DGC is backed by investors including Singapore sovereign wealth fund GIC.
The lawsuit filed on Thursday by New York Attorney-General Letitia James accuses Gemini, which operated a crypto exchange, and DCG’s Genesis Global Capital unit of failing to disclose to investors the risks of a crypto lending programme they started in 2021. The venture’s assets collapsed in 2022 amid several high-flying bankruptcies, including Sam Bankman-Fried’s FTX.
Ms James said that some investors lost their life savings.
The state said it wants to ban Gemini, Genesis and DCG from the financial investment industry in New York. Ms James is also seeking restitution for investors and disgorgement of the companies’ allegedly ill-gotten gains.
Gemini, founded by brothers Tyler and Cameron Winklevoss, lied to customers about how risky loans were in its venture with Genesis and failed to disclose that at one point, almost 60 per cent of its third-party loans were to Bankman-Fried’s crypto trading firm Alameda Research, the state claims. Genesis and DCG were accused in the suit of trying to conceal spiralling losses.
The claims by New York come after the United States Securities and Exchange Commission in January sued Genesis and Gemini over their failed crypto-lender joint venture, known as Gemini Earn.
Meanwhile, the three firms have also engaged in suing each other in the wake of sector woes. Genesis, which filed for bankruptcy in January, later sued its parent DCG, seeking to recover about US$620 million in outstanding loans. Gemini has also sued DCG, as well as DGC chief executive Barry Silbert, seeking to recover “damages and losses” from alleged “fraud and deception” related to Gemini Earn.
The alleged fraud by the companies is “yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry”, Ms James said in a statement.
“My office will continue its efforts to stop deceptive cryptocurrency companies, and to push for stronger regulations to protect all investors,” said the Attorney-General, who has sought to position herself as a leading crypto enforcer.
DCG, in a statement, said it has always conducted business “lawfully and with integrity”, and that the company will fight the state’s allegations.
“We have actively cooperated for months with the Attorney-General’s investigation in an open and transparent manner,” DCG said. “We were blindsided by the filing of the complaint, and there is no evidence of any wrongdoing by DCG, Barry Silbert, or its employees.”
Gemini, in a statement posted on X, formerly known as Twitter, applauded the complaint against Genesis and DCG, but said that it wholly disagrees with the Attorney-General’s decision to also sue Gemini.
“Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position,” said Gemini.
Gemini Earn purported to generate as much as 8 per cent interest for Gemini customers by allowing Genesis to lend their crypto assets to third parties. But more than US$1 billion was invested in Three Arrows Capital, a hedge fund that failed in mid-2022, leaving a hole in Genesis’ balance sheet, according to the lawsuit. Around the same time, Genesis lost more than US$100 million from another borrower, Babel Finance, Ms James said.
Genesis is accused in the suit of failing to adequately audit Three Arrows and lying to Gemini when it claimed “to regularly review its borrowers’ financial statements”, Ms James said.
The state’s probe found that no such audit had been performed for more than two years, she said.
In July 2022, Gemini’s board of managers considered ending the Gemini Earn programme due to the Genesis risks, with one board member comparing the company’s financial condition to Lehman Brothers, Ms James said in her statement.
But Gemini “failed to provide its investors with any meaningful warnings about these risks”, she said.
The complaint noted that “Gemini’s chief operations officer, who also sat on Gemini’s Enterprise Risk Management Committee, withdrew his entire remaining Earn investment – totalling more than US$100,000 – on June 16 and June 17, 2022”. The filing did not name the executive. Mr Noah Perlman was Gemini’s chief operating officer from August 2020 till January 2023, according to his LinkedIn profile. He then joined Binance, the world’s biggest crypto exchange, as its chief compliance officer.
Other Gemini risk management personnel withdrew their own investments from Earn between June and September as well, according to the complaint.
During a meeting on Oct 20, 2022, Mr Silbert informed Mr Cameron Winklevoss “that Genesis Capital could not redeem Earn investors’ funds without Genesis Capital declaring bankruptcy”, the complaint said. “Gemini secretly granted Genesis Capital multiple extensions to return investor funds.”
Mr Silbert and former Genesis CEO Michael Moro, both of whom are named as defendants in the suit, are accused of repeatedly lying to investors, as well as to Gemini, about the financial woes. Genesis allegedly hid from Gemini the existence of a US$1 billion promissory note that was created to conceal the extent of its losses, according to the complaint. BLOOMBERG
Gemini, DCG sued by New York for alleged $1.5 billion crypto fraud
The lawsuit accuses Gemini and DCG’s Genesis Global Capital unit of failing to disclose to investors the risks of a crypto lending programme they started in 2021. PHOTO: REUTERS
Oct 20, 2023
NEW YORK – Gemini Trust and Digital Currency Group (DCG) are being sued by New York’s top law-enforcement officer for allegedly defrauding customers of US$1.1 billion (S$1.5 billion), escalating legal woes for two companies hit hard by 2022’s plunge in cryptocurrency markets.
DGC is backed by investors including Singapore sovereign wealth fund GIC.
The lawsuit filed on Thursday by New York Attorney-General Letitia James accuses Gemini, which operated a crypto exchange, and DCG’s Genesis Global Capital unit of failing to disclose to investors the risks of a crypto lending programme they started in 2021. The venture’s assets collapsed in 2022 amid several high-flying bankruptcies, including Sam Bankman-Fried’s FTX.
Ms James said that some investors lost their life savings.
The state said it wants to ban Gemini, Genesis and DCG from the financial investment industry in New York. Ms James is also seeking restitution for investors and disgorgement of the companies’ allegedly ill-gotten gains.
Gemini, founded by brothers Tyler and Cameron Winklevoss, lied to customers about how risky loans were in its venture with Genesis and failed to disclose that at one point, almost 60 per cent of its third-party loans were to Bankman-Fried’s crypto trading firm Alameda Research, the state claims. Genesis and DCG were accused in the suit of trying to conceal spiralling losses.
The claims by New York come after the United States Securities and Exchange Commission in January sued Genesis and Gemini over their failed crypto-lender joint venture, known as Gemini Earn.
Meanwhile, the three firms have also engaged in suing each other in the wake of sector woes. Genesis, which filed for bankruptcy in January, later sued its parent DCG, seeking to recover about US$620 million in outstanding loans. Gemini has also sued DCG, as well as DGC chief executive Barry Silbert, seeking to recover “damages and losses” from alleged “fraud and deception” related to Gemini Earn.
The alleged fraud by the companies is “yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry”, Ms James said in a statement.
“My office will continue its efforts to stop deceptive cryptocurrency companies, and to push for stronger regulations to protect all investors,” said the Attorney-General, who has sought to position herself as a leading crypto enforcer.
DCG, in a statement, said it has always conducted business “lawfully and with integrity”, and that the company will fight the state’s allegations.
“We have actively cooperated for months with the Attorney-General’s investigation in an open and transparent manner,” DCG said. “We were blindsided by the filing of the complaint, and there is no evidence of any wrongdoing by DCG, Barry Silbert, or its employees.”
Gemini, in a statement posted on X, formerly known as Twitter, applauded the complaint against Genesis and DCG, but said that it wholly disagrees with the Attorney-General’s decision to also sue Gemini.
“Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position,” said Gemini.
Gemini Earn purported to generate as much as 8 per cent interest for Gemini customers by allowing Genesis to lend their crypto assets to third parties. But more than US$1 billion was invested in Three Arrows Capital, a hedge fund that failed in mid-2022, leaving a hole in Genesis’ balance sheet, according to the lawsuit. Around the same time, Genesis lost more than US$100 million from another borrower, Babel Finance, Ms James said.
Genesis is accused in the suit of failing to adequately audit Three Arrows and lying to Gemini when it claimed “to regularly review its borrowers’ financial statements”, Ms James said.
The state’s probe found that no such audit had been performed for more than two years, she said.
In July 2022, Gemini’s board of managers considered ending the Gemini Earn programme due to the Genesis risks, with one board member comparing the company’s financial condition to Lehman Brothers, Ms James said in her statement.
But Gemini “failed to provide its investors with any meaningful warnings about these risks”, she said.
The complaint noted that “Gemini’s chief operations officer, who also sat on Gemini’s Enterprise Risk Management Committee, withdrew his entire remaining Earn investment – totalling more than US$100,000 – on June 16 and June 17, 2022”. The filing did not name the executive. Mr Noah Perlman was Gemini’s chief operating officer from August 2020 till January 2023, according to his LinkedIn profile. He then joined Binance, the world’s biggest crypto exchange, as its chief compliance officer.
Other Gemini risk management personnel withdrew their own investments from Earn between June and September as well, according to the complaint.
During a meeting on Oct 20, 2022, Mr Silbert informed Mr Cameron Winklevoss “that Genesis Capital could not redeem Earn investors’ funds without Genesis Capital declaring bankruptcy”, the complaint said. “Gemini secretly granted Genesis Capital multiple extensions to return investor funds.”
Mr Silbert and former Genesis CEO Michael Moro, both of whom are named as defendants in the suit, are accused of repeatedly lying to investors, as well as to Gemini, about the financial woes. Genesis allegedly hid from Gemini the existence of a US$1 billion promissory note that was created to conceal the extent of its losses, according to the complaint. BLOOMBERG
