Crypto regulations in the United States ic coming in on all fronts – starting with the SEC, CFTC, IRS, Fed, and now the New York government leadership. As it is commonly known, the Crypto world is prone to risks, including fraud, among other cyber crimes associated with digital funds.
Among the key aspects considered in these investments are security and transparency, which need to be paramount. Over the years, investors have flocked to invest in these digital currencies with a view of multiplying their capital investment.
Among the prominent digital currency investments include Genesis, Gemini, and Digital Currency Group (DCG). As of today, all these entities are currently facing a legal lawsuit against them filed by the New York Attorney General (AG).
New York case against renowned crypto exchanges
On Thursday, the New York Attorney General, Letitia James, filed a lawsuit against their top players in the digital space, Genesis, Gemini, and DCG. The case brought by the AG explained the defrauding incidents brought about by the crypto platforms where several investors lost their funds.
These crypto players are the next in line after FTX, Binance, and Coinbase to take center stage in a legal storm that was disclosed by the New York AG for crypto fraud. This has been one of many incidents in the cryptocurrency market that have been a challenge ever since the inception of digital currencies.
According to New York’s AG, Gemini, Genesis, and DCG were responsible for defrauding over $1 billion from its investors. The lawsuit erupted a series of events, including charges brought against Genesis’s former Chief Executive Officer (CEO) Soichiro “Michael” Moro.
Barry Silbert, Digital Currency Group’s (DCG) CEO, was also implicated in the lawsuit, trying to hide $1.1 billion in asset losses and defrauding the public and investors.
An estimate of about 230,000 investors were affected by the defrauding incident caused by the three firms. This included 29,000 New York residents. The report by the New York AG explained that Gemini lied to its investors about its Gemini Earn program and termed it as a “low-risk investment” when it actually wasn’t. According to James, the three firms:
Disguised $1.1 billion in losses through a months-long campaign of misstatements, omissions, and concealment by way of a promissory note […] My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.
New York Attorney General Letitia James
The NYAG is currently seeking to halt and ban all Gemini, Genesis, and DCG services from the crypto-financial investment industry in the state of New York. AG James also vowed to step in and push for stronger regulation.
Happenings prior to the defrauding suit
According to the NYAG, Gemini lent out funds to Genesis, which is owned by DCG as a member of its Earn program. Later, the funds were lent out to other trading firms, including Three Arrows Capital and Alameda Research, which went bankrupt. The recent lawsuit presented against the three firms connotes Attorney General James’s rein in the crypto industry targeting investor protection.
The New York AG went further on record and complained about the misleading information the three organizations posted in light of defrauding their investors.
The tweets were false, misleading, and omitted material facts. DCG did not simply ‘assume’ the $1.1 billion, open-term liability related to Three Arrows, which could be called at any time; it replaced that liability with an illiquid ten-year Promissory Note.
New York Attorney General Letitia James
The NYAG explained that Gemini was well aware that the Genesis loans were under-secured. At one point, they put all their focus on the former FTX CEO, Sam Bankman-Fried’s trading firm, Alameda. However, this information was not revealed to investors.
The lawsuit could have several impacts on the crypto community, among them being regulatory scrutiny and loss of investor confidence in digital currencies. This would mean a drop in crypto adoption and a potential collapse of crypto investment firms.
