New York attorney general expands crypto lawsuit, sees $3 billion fraud

A representation of the virtual cryptocurrency Bitcoin is seen in this picture illustration taken October 19, 2021. REUTERS/Edgar Su Purchase Licensing Rights

NEW YORK, Feb 9 (Reuters) – New York Attorney General Letitia James on Friday expanded her lawsuit against Digital Currency Group and other cryptocurrency defendants, tripling the size of their alleged fraud scheme to more than $3 billion.

She claimed they caused more than $1 billion of losses by misleading investors about the Gemini Earn program, which let customers lend crypto assets to Genesis in exchange for a high rate of return.

The attorney general said it had become clear as more investors came forward that “the scam perpetrated by DCG through Genesis” also ensnared investors who sent money directly to Genesis and were falsely assured their money was safe.

Many of the additional investors were retail customers, including a chiropractor and a stay-at-home father who each invested $2 million of bitcoin with Genesis, the complaint said.

James is seeking more than $3 billion of restitution for the more than 230,000 investors who she believes were defrauded.

“This illegal cryptocurrency scheme, and the horrific financial losses that real people have suffered, are yet another reminder of why stronger cryptocurrency regulations are needed to protect all investors,” James said in a statement.

DCG said Friday that James’ lawsuit was “baseless” and that it expects to win in court.

“DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated,” it said in a statement.

Genesis is shutting down after filing for bankruptcy in January 2023.

Representatives for DCG and Gemini did not immediately respond to requests for comment.

Barry Silbert, who is DCG’s chief executive, and Soichiro Moro, a former Genesis chief executive, are also defendants.

Genesis filed for bankruptcy two months after halting withdrawals by Gemini Earn customers following the collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange.

Both Genesis and Gemini were also sued by the U.S. Securities and Exchange Commission, which said they bypassed disclosure requirements meant to protect Gemini Earn customers.

Gemini, meanwhile, has sued DCG over their failure of their crypto lending partnership.