New York Attorney General Letitia James has taken decisive action against major players in the cryptocurrency industry, filing a lawsuit against Gemini Trust, Genesis Global Capital, and Digital Currency Group (DCG).
The legal action centers around Gemini Earn, a joint effort between Genesis and Gemini that offered investors significant returns on their cryptocurrency deposits. Nonetheless, James asserts that these returns were founded on misleading information, resulting in significant financial losses for unsuspecting investors.
Lawsuit Sheds Light on Gemini’s Deceptive Practices
Genesis, a subsidiary of Digital Currency Group, initially partnered with Gemini in February 2021, offering users the opportunity to lend cash and cryptocurrency at interest rates as high as 8%. This capital was subsequently loaned to various entities, including hedge funds, to generate returns.
However, according to the lawsuit, internal risk analyses at Gemini indicated that loans to Genesis were precarious, information allegedly not disclosed to investors.
Sam Bankman-Fried’s Alameda Research emerged as a significant player, representing nearly 60% of all outstanding loans from Genesis. This concentration raised concerns, particularly in light of Bankman-Fried’s ongoing criminal trial related to the collapse of FTX and Alameda.
The suit further alleges that although Gemini adjusted its assessment of Genesis’s credit rating from investment grade to junk in February 2022, this critical update was not made public. In July 2022, discussions among Gemini’s board of managers about discontinuing Gemini Earn due to associated risks were reportedly held, with some of the exchange’s risk personnel allegedly pulling their investments from the program.
One particularly distressing case outlined in the lawsuit involves a retired 73-year-old grandmother who invested her life savings of $199,000 in Gemini Earn, influenced by the product’s marketing statements. Her losses represent the broader impact on middle-class investors that Attorney General James emphasized.
New York AG Takes on Crypto Giants
Letitia James has distinguished herself as one of the most assertive U.S. regulators in the cryptocurrency space. Previous actions have targeted stablecoin issuer Tether, associated company Bitfinex, and former Celsius CEO Alex Mashinsky.
Notably, James proposed comprehensive cryptocurrency legislation in May, which led to a clash with the Department of Financial Services, another influential crypto regulator in the state.
The latest lawsuit comes on the heels of the SEC’s legal action against both Genesis and Gemini, asserting that Gemini Earn constituted an unregistered offer and sale of securities. In a public dispute that spanned several months, Gemini responded with a suit against Genesis’s parent company, DCG, and CEO Barry Silbert, alleging fraud and deception.
As negotiations persist regarding the release of trapped funds from Gemini Earn, the lawsuit from Attorney General James introduces a new layer of complexity to the operations of these crypto giants. Beyond seeking restitution for investors and disgorgement penalties, the suit aims to halt Gemini, Genesis, and DCG from participating in activities related to securities and commodities in New York.
Binance Free $100 (Exclusive): Use this link to register and receive $100 free and 10% off fees on Binance Futures first month (terms).
PrimeXBT Special Offer: Use this link to register & enter CRYPTOPOTATO50 code to receive up to $7,000 on your deposits.
The post appeared first on CryptoPotato
