Filings shake up NY Attorney General case against Genesis, Gemini

On Feb. 8, the New York State Office of the Attorney General (NYAG) settled with Genesis Global Holdco in a proposed motion in its case surrounding the Gemini Earn program. However, the following day, the NYAG filed a new, expanded complaint in the case, naming Genesis Global Holdco and all its codefendants.

The Genesis holding company filed a motion for the New York Southern District Bankruptcy Court to approve a settlement agreement between it and the NYAG on Feb. 8. The settlement is the “product of extensive negotiation,” the filing said. 

The Genesis settlement stipulated that the NYAG would receive payment on its claims on equal footing with the United States Securities and Exchange Commission, and only after payments to creditors. Genesis settled with the SEC for $21 million on Jan. 31. The court will consider both settlements on Feb. 14.

In October, New York Attorney General Letitia James filed suit against Genesis Holdco, Genesis Global Capital, Genesis Asia Pacific, their parent company Digital Currency Group (DCG), cryptocurrency exchange Gemini, former Genesis CEO Michael (Soichiro) Moro and DCG CEO Barry Silbert for fraud in connection with the Gemini Earn program. The NYAG accused the parties of defrauding more than 230,000 investors, including 29,000 New Yorkers, of more than $1 billion, among other charges.

Related: Genesis bankruptcy plan overpays customer claims, DCG says

On Feb. 9, James announced that the NYAG was expanding its claims against DCG, Silbert and Moro. The NYAG had found additional investors who had lost funds:

“In total, OAG [Office of the Attorney General] found that these companies defrauded more than 230,000 investors out of more than $3 billion.”

In spite of the settlement reached a day earlier, Genesis Holdco (as one of the “Genesis/DCG Defendants”) is mentioned in five of the 10 causes of action in the new complaint. According to the amended complaint:

“Gemini solicited money from the public with false assurances that Earn was a highly liquid investment and that Genesis Capital was creditworthy based on Gemini’s ongoing risk monitoring. In reality, however, Gemini’s confidential risk reports found that Genesis Capital posed a high risk of default.”

Claims that the Genesis loan book was overcollateralized were false, and much of Gemini customers’ funds were invested in FTX-affiliated Alameda Research, according to the complaint. Genesis also suffered losses from the collapse of Three Arrows Capital, the complaint continued. It is seeking a permanent enjoinder against the defendants from operating related businesses in New York state and disgorgement of illegally obtained funds and repayment of investors.

‼️ BREAKING: NEW YORK AG EXPANDS FRAUD CASE AGAINST DIGITAL CURRENCY GROUP

New York AG Letitia James has expanded the fraud case against Digital Currency Group (DCG), alleging $3 billion in investor losses linked to the Gemini Earn product and Genesis investments.… pic.twitter.com/EK0eStKibI

— SVS NEWS AGENCY (@svsnewsagency) February 9, 2024

Gemini and Genesis partnered on the Gemini Earn program, which was launched in 2021. Genesis suspended withdrawals in November 2022 and filed for bankruptcy in January 2023. A flurry of court action resulted. The SEC filed a complaint against Gemini and Genesis in January 2023. Gemini sued Genesis in July and again in October. Genesis reached an agreement with the New York Department of Financial Services for Anti-Money Laundering failings and weak cybersecurity in January. It also lost its New York BitLicense under the agreement.

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