New York Attorney General Increases Fraud Claims Against DCG to Exceed $3 Billion

New York Attorney General Letitia James has intensified the state’s legal proceedings against Digital Currency Group (DCG), increasing the estimated scale of the alleged fraud to more than $3 billion. This update comes after an extensive investigation by James’s office, which revealed additional investors defrauded of $2 billion in assets, as stated in a release issued on Friday. The lawsuit focuses on a cryptocurrency lending initiative referred to as Gemini Earn.

The original lawsuit, filed in October, targeted Gemini, Genesis, and DCG concerning the Gemini crypto lending program, claiming that over 29,000 New Yorkers were defrauded of more than $1 billion. The revised complaint now indicates that the companies allegedly deceived over 230,000 investors out of more than $3 billion. James accused DCG and Genesis of masking $1.1 billion in losses through a series of misstatements, omissions, and concealments.

Lawsuit Against Digital Currency Group (DCG) Expands Over Alleged Fraud

Attorney General James highlighted the extensive nature of the fraud, stating, “After months of false promises, we pulled the curtain back and revealed that DCG was lying to investors and defrauding them out of billions.” DCG has not yet provided a response to inquiries regarding the situation.

According to the NYAG, the broadened lawsuit includes not only the losses experienced by retail investors in the Gemini Earn investment program but also other investors who directly funded DCG’s affiliate, Genesis.

Attorney General James denounced the fraudulent scheme, stressing the necessity for enhanced cryptocurrency regulations to safeguard all investors. The lawsuit underscores instances where Gemini assured investors that investing with Genesis through the Gemini Earn program was low-risk, despite internal assessments indicating the financials were precarious.

Moreover, the defendants allegedly sought to hide losses through a $1.1 billion promissory note, which DCG agreed to pay Genesis at a low interest rate over a ten-year period.

However, the SEC had previously charged the Gemini Earn program with being an unregistered securities offering, claiming that Genesis raised “billions of dollars” from thousands of investors. The SEC further asserted that Genesis did not possess adequate liquid assets to meet withdrawal demands, placing investors in a vulnerable situation.

Since the initial lawsuit, more investors have come forward with grievances, indicating the widespread nature of the fraud. While the initial emphasis was on losses suffered by retail investors involved in the Gemini Earn program, further investigations uncovered that other investors who contributed directly to Genesis were also impacted.

The amended complaint seeks restitution exceeding $3 billion for defrauded investors.

New York Attorney General Expands Efforts to Regulate Cryptocurrency Industry and Protect Investors

This development follows Genesis Global Holdco’s recent settlement with the New York Attorney General (NYAG) and the Securities and Exchange Commission (SEC). Genesis, the parent company of DCG, reached an agreement with the NYAG while also settling a lawsuit with the SEC by consenting to pay $21 million.

Attorney General James has been proactive in issuing alerts and notices to virtual currency investors and their tax advisors to ensure precise reporting and payment of taxes on virtual investments. This initiative is part of James’ ongoing efforts to regulate the cryptocurrency sector and safeguard investors, aimed at enhancing regulations and holding accountable those engaging in deceptive practices within the cryptocurrency domain.

In October 2023, Attorney General James initiated legal action against Gemini, Genesis, and DCG for their roles in defrauding investors and executing a scam. Prior to this, in June 2023, over $1.7 million was recovered from CoinEx for operating as an unregistered securities and commodities broker-dealer while misrepresenting itself as a cryptocurrency exchange.

Similarly, in May 2023, $4.3 million was obtained from Coin Cafe for failing to register as a commodity broker-dealer and defrauding investors. In January 2023, Attorney General James, along with a multistate coalition, successfully recovered $24 million from the cryptocurrency platform Nexo for operating illegally. Legal actions have also been initiated against individuals, including the former CEO of Celsius, for defrauding investors and concealing the company’s critical financial situation.

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