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NY AG sues Winklevoss twins’ crypto firm Gemini in alleged $1.1B fraud

A pair of crypto firms including a struggling exchange owned by the Winklevoss twins allegedly bilked investors out of $1.1 billion because the digital currency market tanked last yr, based on a bombshell lawsuit filed Thursday by New York’s attorney general.

The twins’ New York-based crypto exchange Gemini, together with billionaire Barry Silbert’s firm Digital Currency Group and its subsidiary, the now-bankrupt crypto bank Genesis Capital, stand accused of defrauding greater than 230,000 customers, including not less than 29,000 New Yorkers.

The criticism was unveiled weeks after The Post reported Cameron and Tyler Winklevoss secretly pulled $282 million in cryptocurrency from Genesis on Aug. 9, 2022. A couple of months afterward Nov. 16, Genesis had frozen withdrawals on some $900 million in customer assets after the bank was caught up within the meltdown of Sam Bankman-Fried’s FTX empire.

“This fraud is one more example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” New York AG Letitia James said in an announcement. “My office will proceed our efforts to stop deceptive cryptocurrency corporations and push for stronger regulations to guard all investors.”

The firms face scrutiny over the now-defunct Gemini Earn program, an interest-bearing account product that teased customers with as much as 8% interest on their crypto deposits. Genesis served as the only real banking partner of Gemini Earn.

The Post was first to report on Gemini’s secret $282 million withdrawal from Genesis.
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Gemini never responded to The Post’s request for comment on the withdrawal, but later acknowledged it had occurred. The company claimed it withdrew “Earn users’ money” to create a “liquidity reserve” for them under this system’s terms of service as a part of a “clever and prudent” risk management strategy.

The explanation infuriated some Earn customers and claimant attorneys who spoke to The Post and questioned why Gemini never halted this system or informed clients that anything was amiss despite its apparent misgivings.

The withdrawal also raised questions on what the twins knew about Genesis’ financial stability and when within the months before its collapse – a central theme within the New York attorney general’s lawsuit, which alleged that Gemini repeatedly assured investors the Earn program was a secure investment despite the fact that its own internal analyses of Genesis showed it was a high-risk lender.

Victims of the Gemini Earn meltdown included a 73-year-old grandmother in New York who “invested her and her husband’s lifesavings of over $199,000 in Gemini Earn because they believed Gemini’s marketing statements that it was a secure and secure alternative,” based on the state’s lawsuit. The money was intended to pay for her grandchild’s education.

The Winklevoss twins have denied wrongdoing within the collapse of Gemini Earn.
AFP via Getty Images

“Are you going to have the opportunity to offer us our money any time soon? I’m crying all day. I’m 73 years old and without that cash I’m doomed,” the unnamed grandmother said in a Nov. 29 message to Gemini, based on the criticism.

The lawsuit also claims that Gemini risk management personnel pulled their personal investments out of the Earn program before its collapse. Gemini’s chief operating officer, who shouldn’t be named within the suit, allegedly withdrew his entire investment of greater than $100,000 from Earn on June 16 and 17 of last yr. The company’s COO on the time, Noah Perlman, departed from the role in January.

In an announcement, Gemini tried to spin the most recent lawsuit in its favor – claiming it “confirms what we’ve been saying all along — that Gemini, Earn users, and other creditors were the victims of a large fraud and systematically ‘lied to’ by these parties about ‘Genesis’s financial condition.’”

“With that said, we wholly disagree with the NY AG’s decision to also sue Gemini,” the corporate said. “Blaming a victim for being defrauded and lied to is senseless and we sit up for defending ourselves against this inconsistent position.”

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Gemini’s statement drew a harsh response from some X users.

“You are acting like CHILDREN,” one X account called “Crypto Watchdog” wrote. “Newsflash: that is YOUR FAULT, TOO!”

Gemini didn’t disclose its concerns to the general public – including that almost 60% of Genesis’s loans were at one point tied to Alameda Research, the freewheeling crypto hedge fund whose dangerous bets led to FTX’s meltdown, the criticism alleges.

Gemini allegedly downgraded its own estimate of Genesis credit standing to a junk grade in February 2022, but continued marketing this system as a low-risk investment up until its collapse that November.

In July 2022, a Gemini board member allegedly compared the state of Genesis Capital to that of infamous investing banking firm Lehman Brothers before its collapse throughout the Great Recession, the suit said.

Separately, Genesis and DCG are accused of attempting to hide $1.1 billion in losses from customers within the months before the Earn program failed. Silbert, DCG and Genesis are also alleged to have misled each Gemini and the general public about Genesis’ financial health.

New York Attorney General Letitia James is pictured.
Getty Images

James is looking for restitution payments for investors and disgorgement of any ill-gotten gains. Additionally, Gemini, Genesis and DCG face a ban from participating within the financial investment industry in New York.

Silbert said in an announcement that he was “shocked by the baseless allegations within the Attorney General’s criticism and intend to fight these claims in court.”

DCG said it “fully intend(s) to fight the claims and sit up for being vindicated on this case.”

“DCG has at all times conducted its business lawfully and with integrity,” a DCG spokesperson said. “We have actively cooperated for months with the Attorney General’s investigation in an open and transparent manner. We were blindsided by the filing of the criticism, and there is no such thing as a evidence of any wrongdoing by DCG, Barry Silbert, or its employees.”

The lawsuit is just the most recent legal headache facing the Winklevoss twins. In January, the SEC sued Gemini and Genesis for allegedly offering “unregistered securities to the general public, bypassing disclosure requirements designed to guard investors.”

DCG CEO Barry Silbert said he was “shocked” by the lawsuit’s allegations.
Bloomberg

The Winklevoss twins and Silbert are also locked in a nasty public legal battle with one another.

The brothers — who became crypto kingpins after gaining notoriety for his or her legal war over Facebook with former Harvard classmate Mark Zuckerberg — sued Silbert and DCG in July, alleging that they got a “false, misleading, and incomplete representation” of Genesis’s financial health. DCG later filed a motion to dismiss the suit, which remains to be pending.

The New York AG’s lawsuit was announced at the same time as Bankman-Fried faces trial on federal charges for allegedly misappropriating billions of dollars in FTX customers funds to cover dangerous bets at Alameda.

Bankman-Fried’s ex-girlfriend Caroline Ellison, the previous CEO of Alameda, was a star witness for the prosecution. Bankman-Fried has pleaded not guilty.

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