NY Attorney General Files Complaint Against Gemini, Genesis, DCG, Michael Moro, and Barry Silbert Over $1 Billion Cover-Up

The New York Attorney General, Letitia James, has filed a complaint against several entities in the crypto industry, including the Gemini exchange, Genesis crypto lending firm, Digital Currency Group (DCG), and two executives, Michael Moro and Barry Silbert, as per a recent The Block report.

Gemini provided loans to Genesis as part of its Earn program, which were lent to counterparties, including Three Arrows Capital and Alameda. Multiple bankruptcies in the space led to defaults at Genesis, resulting in a significant financial gap of $1 billion. To conceal this gap, DCG claimed to have absorbed the losses, but in reality, it had only issued a promissory note to its subsidiary Genesis.

Additionally, Gemini's risk management team had determined that Genesis was highly leveraged and had low liquidity in May 2021. They projected a 50-60% default rate in a market downturn, with financials similar to companies with a substantial credit risk.

Gemini falsely assured the public that Genesis' loans were overcollateralized, with data showing that the loans were only 60-90% collateralized. This was in stark contrast to a Gemini press release from February 2021 that falsely claimed Genesis' loans were overcollateralized.

The complaint revealed that public statements by Genesis and Moro about mitigating losses and a strong balance sheet were misleading, as the promissory note only concealed the financial risk.

The NYAG also claimed that DCG borrowed over $800 million from Genesis between January and July 2022. It was revealed that DCG was unable to pay back a $100 million loan with a maturity date, which was later extended to May 2023.

The complaint calls for the defendants to be restricted from participating in the sales of securities and commodities in New York and seeks damages, penalties, and the forfeiture of any profits gained from their activities.

Resources:

The Block