New York Attorney General triples estimated size of alleged fraud in case against DCG

New York Attorney General Letitia James has expanded the state's lawsuit against Digital Currency Group and tripled the estimated size of alleged fraud to more than $3 billion.

After a continued investigation, James said the office became aware that more investors were defrauded, leading to an additional $2 billion in assets that were lost, according to a statement released on Friday. The lawsuit hinges on a crypto lending program called Gemini Earn. 

"While the initial suit focused largely on the losses of retail investors participating in the Gemini Earn investment program, as more complaints have been made, it became clear that the complicated nature of the fraud also swindled other investors who contributed their money directly to DCG’s affiliate Genesis," the NYAG said. 

The NYAG sued Gemini, Genesis and its parent company DCG in October over the Gemini crypto lending program. At the time, James said the three entities defrauded more than 29,000 New Yorkers of more than $1 billion. James also said DCG and Genesis "disguised $1.1 billion in losses through a months-long campaign of misstatements, omissions, and concealment."

The NYAG has now found that the companies defrauded more than 230,000 investors out of more than $3 billion, according to the new amended complaint. 

“After months of false promises, we pulled the curtain back and revealed that DCG was lying to investors and defrauding them out of billions,” Attorney General James said in a statement. “The fraud and deceit were so expansive that many additional people have come forward to report similar harm. 

A DCG spokesperson criticized the news and said the firm and its CEO Barry Silbert will be vindicated. 

“There is nothing new here," the spokesperson said in a statement. :This is the same baseless complaint recirculated to generate another round of press headlines. We will fight the claims aggressively and we will win. DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated.”

Settlements

This comes after Genesis Global Holdco, which filed for bankruptcy protection in January 2022, said it reached a settlement with the NYAG in a court filing on Thursday. DCG is the parent company of that firm. 

"After months of hard-fought negotiation, the Debtors and NYAG have reached a resolution of the NY Action," Genesis said in a document filed in the U.S. Bankruptcy Court for the Southern District of New York. A judge would still have to approve that settlement. 

Last week, Genesis Global Holdco settled a lawsuit brought by the Securities and Exchange Commission and agreed to pay $21 million. 

The SEC said the Gemini Earn program was an unregistered securities offering where they were able to raise "billions of dollars'" worth of crypto from thousands of investors. The SEC said Genesis lacked enough liquid assets to meet withdrawal costs a year into the program leaving investors dry, among other allegations. New York's James said Genesis hid $1.1 billion in losses. 

Updated at 1:10 p.m. ET to include DCG comment