New York sues crypto firms, alleging fraud in $1B case

New York Attorney General Letitia James filed a lawsuit against cryptocurrency companies, alleging $1 billion in fraud.

James alleges that cryptocurrency trading companies Gemini Trust Company, Genesis Global Capital LLC, its affiliates, and Digital Currency Group (DCG) are guilty of defrauding more than 230,000 investors. James’s investigation alleged that Gemini lied to investors about a program it ran with Genesis and the program’s risks.

The lawsuit also alleges Genesis, its former CEO Soichiro Moro, the parent company DCG and DCG’s CEO Barry Silbert with defrauding investors and the public by trying to conceal $1.1 billion in losses.

“As a result of these misleading claims and deceptions, thousands of investors lost millions of dollars and, in some instances, lost their lifesavings,” according to the statement by the attorney general’s office.

James’s office said it is seeking the lawsuit to ban the companies from the financial investment industry in New York and to seek restitution for investors who lost money.

“These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result,” James said in a statement. “This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry.”

In the statement, James provided an example of a 73-year-old retired grandmother in New York who invested more than $199,000 of her lifesavings into Gemini. The woman had hoped to use the money to pay for her grandchild’s education but lost it because of the company’s alleged fraud, James’s statement said.

James’s lawsuit alleges that from the start of Gemini’s Gemini Earn program in February 2021, the company knew the operation was risky. Her lawsuit also alleges that Gemini knew Genesis’s loans were unsecured and highly concentrated with one person, Sam Bankman-Fried.

Bankman-Fried is the co-founder of crypto exchange FTX and crypto trading firm Alameda. Bankman-Fried is currently on trial for seven charges related to fraud. Alameda, which James said held a lot of Genesis’s loans, filed for bankruptcy in November.

James has been a big advocate for crypto-related legislation that will increase regulations for the emerging industry.