New York Attorney General Letitia James made a significant announcement on Monday, revealing a groundbreaking settlement that marks a pivotal moment in the cryptocurrency world. The settlement, totaling $2 billion, was secured against Genesis Trading for defrauding investors. This landmark agreement stands as the largest settlement ever reached against a cryptocurrency company in the history of New York.
The charges brought against Genesis Trading originated from allegations made by Attorney General James in 2023. According to the lawsuit, Genesis Trading, along with other major players like Gemini Trust and Digital Currency Group, were involved in a complex fraud scheme totaling $1 billion. The accusations included deceiving investors and concealing substantial losses, underscoring the vulnerabilities and risks within the cryptocurrency market.
Specifically, the lawsuit targeted Gemini Trust, the brainchild of the Winklevoss twins; Genesis Capital, a lending institution; and its parent company, Digital Currency Group. The focus was on Gemini’s Earn program, which promised investors up to 8 percent returns for lending their cryptocurrency to Genesis. However, the lawsuit alleged that Gemini misrepresented the risks associated with the program, leaving investors unaware of the potential dangers.
The fallout from the collapse of the cryptocurrency exchange FTX, led by Sam Bankman-Fried, significantly impacted Genesis Trading. As digital asset values plummeted, Genesis froze accounts, leaving Earn investors unable to access their cryptocurrency holdings worth hundreds of millions of dollars. This sudden turn of events exposed the vulnerabilities within the cryptocurrency ecosystem and highlighted the risks associated with lending platforms like Gemini’s Earn program.
Internal documents from Gemini revealed that the company’s risk analysis teams had identified Genesis as highly risky and leveraged with limited liquidity shortly after the inception of the Earn program in 2021. Despite this knowledge, Gemini failed to disclose these risks to investors, resulting in 29,000 New Yorkers and hundreds of thousands of other investors nationwide being exposed to potential losses.
Further allegations in the lawsuit claimed that Genesis and Digital Currency Group attempted to conceal Genesis’ financial troubles from Gemini and Earn investors. The firms allegedly engaged in a deceptive practice by creating a $1.1 billion, 10-year promissory note to create a false impression of financial stability, thereby encouraging continued investment in the Earn program.
In January 2023, the Securities and Exchange Commission (SEC) took action, charging Gemini and Genesis with offering unregistered securities and raising billions of dollars in digital assets without proper disclosures. Additionally, Gemini faces multiple class-action lawsuits from Earn investors, further compounding its legal challenges.
Attorney General James emphasized the significance of the settlement, stating, “This $2 billion settlement sends a clear message that we will not tolerate fraud in the cryptocurrency market. Companies that deceive investors and hide significant losses will be held accountable.”
The repercussions of this case extend beyond legal and regulatory spheres, impacting investor confidence and shaping the future trajectory of the cryptocurrency industry. The fallout from this settlement will be closely monitored by industry stakeholders, policymakers, and investors alike, as it underscores the critical need for transparency, accountability, and robust investor protections in the rapidly evolving world of digital assets.