New York Attorney General Letitia James is suing Gemini Trust Co. and Digital Currency Group, accusing the  companies of defrauding more than 230,000 cryptocurrency investors of $1.1 billion.

Crypto exchange operator Gemini and DCG’s Genesis Global Capital unit allegedly did not disclose financial risks to those investing in Earn, a crypto-lending program they began in 2021, according to the lawsuit filed Thursday by the state’s top law enforcement officer. The program went belly up last year amid bankruptcies including San Bankman-Fried’s FTX. 

Founded by Tyler Winklevoss and Cameron Winklevoss, Gemini allegedly deceived customers about the risk of the loans in the venture with Genesis and also failed to reveal that at one time, nearly 60% of its third-party loans were to Bankman-Fried’s crypto trading firm, Alameda Research, James claims.

The lawsuit also claims Genesis failed to adequately audit its borrower, Three Arrows Capital, which defaulted on billions in loans in June 2022.

James is seeking to ban Gemini, Genesis and DCG from the financial investment industry as well as looking for restitution for investors.

According to the lawsuit, some of those investors lost their life savings.

“On November 29, 2022, one New Yorker pleaded with Gemini for the return of her $199,000 investment, writing ‘Are you going to be able to give us our money any time soon? I am crying all day. I am 73 years old and without that money I am doomed.'”

None of the defendants has returned any investor’s asset since the Earn program closed in November, with Genesis and its related entities instead declaring bankruptcy in January, the suit stated.

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

James in May proposed legislation that would mandate public audits of crypto exchanges, prohibit some ownership arrangements to curtail conflicts of interest and increase oversight of the industry.

Gemini responded on social media, posting that James’ lawsuit “confirms what we’ve been saying all along — that Gemini Earn users and other creditors were the victims of a massive fraud and systematically ‘lied to’ by these parties about Genesis’s financial condition,'” the company said. Still, it took issue with being named in the filing: “Blaming a victim for being defrauded and lied to makes no sense,” it said.

DCG vowed to fight the claims, saying in an email that the company was “blindsided by the filing of the complaint, and there is no evidence of any wrongdoing by DCG.”

“I am shocked by the baseless allegations,” DCG founder and CEO Barry Silbert stated. “Last year, my and DCG’s goal was to help Genesis weather the storm caused by the collapse of Three Arrows and position Genesis going forward.”

Genesis did not immediately respond to requests for comment.

The Securities and Exchange Commission in January charged Gemini and Genesis with offering unregistered securities and compiling billions in digital assets from hundreds of thousands of investors without the required disclosures. Gemini is also looking at proposed class-action lawsuits on behalf of investors in Earn.

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