New York Attorney General Triples Fraud Allegations Against DCG to Over $3 Billion

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New York Attorney General Letitia James has escalated the state’s legal action against Digital Currency Group (DCG), tripling the estimated size of the alleged fraud to over $3 billion. This development follows a prolonged investigation by James’s office, which uncovered additional investors defrauded of $2 billion in assets, as disclosed in a statement released on Friday. The lawsuit centers on a cryptocurrency lending program known as Gemini Earn.

The initial lawsuit, filed in October, targeted Gemini, Genesis, and DCG over the Gemini crypto lending program, alleging the defrauding of more than 29,000 New Yorkers of over $1 billion. The amended complaint now reveals that the companies allegedly defrauded over 230,000 investors of more than $3 billion. James accused DCG and Genesis of disguising $1.1 billion in losses through a campaign of misstatements, omissions, and concealment.

Lawsuit Against Digital Currency Group (DCG) Expands Over Alleged Fraud

Attorney General James emphasized the extensive nature of the fraud, stating, “After months of false promises, we pulled the curtain back and revealed that DCG was lying to investors and defrauding them out of billions.” DCG has yet to respond to requests for comment on the matter.

According to the NYAG, the expanded lawsuit encompasses not only losses suffered by retail investors in the Gemini Earn investment program but also other investors who directly contributed funds to DCG’s affiliate, Genesis.

Attorney General James condemned the fraudulent scheme, emphasizing the need for stronger cryptocurrency regulations to protect all investors. The lawsuit highlights instances where Gemini assured investors that investing with Genesis through the Gemini Earn program was low-risk, despite internal analyses showing the financials were risky.

Additionally, the defendants allegedly attempted to conceal losses through a $1.1 billion promissory note, which DCG agreed to pay Genesis at a low interest rate over a decade.

However, the SEC had previously accused the Gemini Earn program of being an unregistered securities offering, alleging that Genesis raised “billions of dollars” from thousands of investors. The SEC further alleged that Genesis lacked sufficient liquid assets to cover withdrawal costs, leaving investors in a precarious position.

Since the initial lawsuit, additional investors have come forward with complaints, revealing the widespread nature of the fraud. While the initial focus was on losses incurred by retail investors participating in the Gemini Earn program, further investigations revealed that other investors who contributed directly to Genesis were also affected.

The amended complaint seeks restitution of more than $3 billion for defrauded investors.

New York Attorney General Expands Efforts to Regulate Cryptocurrency Industry and Protect Investors

This development follows Genesis Global Holdco’s recent settlement with the New York Attorney General (NYAG) and the Securities and Exchange Commission (SEC). Genesis, DCG’s parent company, reached an agreement with the NYAG while also settling a lawsuit with the SEC by agreeing to pay $21 million.

Attorney General James has been proactive in issuing warnings and notices to virtual currency investors and their tax advisors to ensure accurate reporting and payment of taxes on virtual investments. This move is part of James’ continued efforts to regulate the cryptocurrency industry and protect investors, aimed at increasing regulations and holding accountable those engaging in deceptive practices within the cryptocurrency space.

In October 2023, Attorney General James initiated legal proceedings against Gemini, Genesis, and DCG for their involvement in defrauding investors and perpetrating a scam. Prior to this, in June 2023, over $1.7 million was recovered from CoinEx for operating as an unregistered securities and commodities broker-dealer while falsely presenting itself as a cryptocurrency exchange.

Similarly, in May 2023, $4.3 million was secured from Coin Cafe for failing to register as a commodity broker-dealer and defrauding investors. In January 2023, Attorney General James, along with a multistate coalition, successfully recovered; $24 million from the cryptocurrency platform Nexo for operating illegally. Legal actions have also been taken against individuals, including the former CEO of Celsius, for defrauding investors and concealing the company’s dire financial status.

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