NY AG Case Against Genesis, Gemini Shaken by Filings

The Genesis Global Holdco case surrounding the Gemini Earn program has taken a new turn with the New York State Office of the Attorney General (NYAG) reaching a settlement with Genesis. The NYAG has also filed an expanded complaint naming Genesis Global Holdco and all its codefendants. Genesis filed a motion for the settlement agreement to be approved by the New York Southern District Bankruptcy Court. The settlement marks the result of extensive negotiation and ensures that the NYAG will receive payment on equal footing with the Securities and Exchange Commission (SEC) and only after payments to creditors, as per the stipulations of the agreement. The court is set to consider both settlements on February 14th.

The legal battle began in October when the NYAG, Letitia James, filed a suit against Genesis Holdco, Genesis Global Capital, Genesis Asia Pacific, Digital Currency Group (DCG), cryptocurrency exchange Gemini, former Genesis CEO Michael (Soichiro) Moro, and DCG CEO Barry Silbert. The charges were related to fraud in connection with the Gemini Earn program, with the NYAG accusing the parties of defrauding over 230,000 investors, including 29,000 New Yorkers, of more than $1 billion. On February 9th, James announced that the NYAG was expanding its claims against DCG, Silbert, and Moro, as additional investors who had lost funds were uncovered. The NYAG claims that these companies defrauded more than 230,000 investors out of over $3 billion.

Despite the settlement reached the day before, Genesis Holdco is still referenced in five of the ten causes of action in the new complaint. The amended complaint alleges that Gemini falsely assured the public that Earn was a highly liquid investment and that Genesis Capital was creditworthy based on Gemini’s risk monitoring. It is claimed that Gemini’s confidential risk reports actually found that Genesis Capital posed a high risk of default. Claims that the Genesis loan book was overcollateralized were also found to be false, and a significant portion of Gemini customers’ funds were invested in FTX-affiliated Alameda Research. Genesis also suffered losses from the collapse of Three Arrows Capital. The new complaint seeks a permanent injunction against the defendants from operating related businesses in New York state, as well as disgorgement of illegally obtained funds and repayment of investors.

The Gemini Earn program was launched in 2021 through a partnership between Gemini and Genesis. In November 2022, Genesis suspended withdrawals, leading to their filing for bankruptcy in January 2023. This resulted in a series of legal actions, including the SEC filing a complaint against Gemini and Genesis in January. Gemini responded by suing Genesis in July and again in October. In January, Genesis also reached an agreement with the New York Department of Financial Services over Anti-Money Laundering failings and weak cybersecurity, resulting in the loss of its New York BitLicense. The case continues to unfold as both settlements are considered by the court.