The aftermath of Sam Bankman-Fried’s cryptocurrency business’s massive collapse continues to reverberate throughout the digital asset industry, nearly a year after the fact. In a recent development, New York’s attorney general has filed a lawsuit against three digital asset companies that were entangled in the downfall of Bankman-Fried’s crypto empire in the past year. The lawsuit accuses Gemini Trust, Genesis Global Capital, and Digital Currency Group, the parent company of Genesis, of misleading investors and concealing losses exceeding $1 billion.
The attorney general’s office reported that an investigation unveiled deceptive practices by Gemini, a crypto firm co-founded by Cameron and Tyler Winklevoss.
Gemini offered a lending service called Gemini Earn, in partnership with Genesis, which was marketed as a low-risk investment, allowing customers to lend their crypto assets to Genesis in exchange for interest payments reaching as high as 8%.
Attorney General Letitia James stated, “These cryptocurrency companies lied to investors, and it was middle-class investors who suffered as a result.” The lawsuit reveals that among the 230,000 affected investors, at least 29,000 were New Yorkers.
This legal action is the most recent endeavor by U.S. authorities to tighten oversight of the trillion-dollar cryptocurrency industry, which has long operated with limited traditional financial regulation. Proponents of cryptocurrencies argue that regulators have been slow to establish clear guidelines for digital assets, which they believe are distinct from conventional securities like stocks or bonds.
Following the collapse of FTX, Genesis initially froze customer redemptions in its lending division, citing market turmoil. Subsequently, the lending unit filed for bankruptcy. According to the recent lawsuit, Gemini was aware of the risks associated with Genesis’ loans, which were, at one point, described as “highly concentrated” with Bankman-Fried‘s crypto trading firm, Alameda Research. Currently, Bankman-Fried is on trial in a federal court in New York, where he has pleaded not guilty to seven counts of fraud and conspiracy.
Attorney General James pointed out, “Gemini concealed the risks of investing with Genesis, and Genesis misled the public about its losses.” The lawsuit also includes former Genesis CEO Soichiro “Michael” Moro and Digital Currency Group CEO Barry Silbert as defendants.