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New York Attorney General Files New Complaint Against Gemini Earn Despite Settlement Deal

More legal moves against Genesis and Gemini by New York AG

On February 8th, the New York State Office of the Attorney General (NYAG) reached a settlement with Genesis Global Holdco, marking a significant moment in the case centered around the Gemini Earn program. However, the narrative took an unexpected turn the following day when the NYAG filed an amended complaint, expanding its legal charges to include Genesis Global Holdco among all its co-defendants. 

This filing is part of a broader legal battle that has seen the NYAG aggressively pursuing claims of fraud and misrepresentation within the cryptocurrency industry, targeting some of its most prominent players. The settlement, described as the "product of extensive negotiation," aims to position the NYAG's claims for payment alongside those of the United States Securities and Exchange Commission, albeit subsequent to creditor reimbursements. Genesis had previously settled with the SEC for $21 million on January 31.

The settlement and its implications

Following a day of legal maneuvering, the situation shifted dramatically for Genesis Global Holdco with the NYAG's announcement of an expanded complaint on February 9. This new complaint not only reiterated the serious allegations against Genesis and its associated entities but also broadened the scope to include additional charges and defendants. Among the highlighted accusations, the NYAG detailed that 

"Genesis Holdco and its codefendants defrauded more than 230,000 investors out of more than $3 billion," a stark increase from previously cited figures.

This legal escalation reflects a deepening scrutiny over Genesis's operations and its partnerships, particularly the collaboration with Gemini on the Gemini Earn program. Launched in 2021, the program promised lucrative returns on crypto deposits, a promise that unraveled dramatically with Genesis's suspension of withdrawals in November 2022 and subsequent bankruptcy filing in January 2023. 

The intertwining legal battles, including a complaint filed by the SEC against both Gemini and Genesis in January 2023, paint a complex picture of alleged regulatory oversights and financial mismanagement that has left thousands of investors in precarious positions.

Expanded allegations and the case's evolution

The NYAG's aggressive legal strategy took on new dimensions with the revelation of expanded allegations against Digital Currency Group (DCG), its CEO Barry Silbert, and former Genesis CEO Michael (Soichiro) Moro. Letitia James, the New York Attorney General, accused these entities of orchestrating a fraudulent scheme that ultimately siphoned over $3 billion from investors, a significant deviation from the initial claims. 

Central to the NYAG's accusations is the assertion that Gemini misled the public with false assurances about the liquidity and creditworthiness of its Earn program investments. The complaint starkly contradicts Gemini's claims, revealing that: 

"Gemini’s confidential risk reports found that Genesis Capital posed a high risk of default." 

Furthermore, it alleges that a substantial portion of the Gemini customers’ funds were invested in FTX-affiliated Alameda Research, exacerbating the financial debacle following the collapse of Three Arrows Capital.

This intensified legal battle not only highlights the precarious nature of cryptocurrency investments but also sets a precedent for regulatory oversight in New York. The NYAG seeks a permanent injunction against the defendants, barring them from operating any related business within the state, alongside demands for disgorgement of illegally obtained funds and repayment to affected investors.