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 as the digital currency market tanked last year, according to a bombshell lawsuit filed Thursday by New York’s attorney general.
The twins’ New York-based crypto exchange Gemini, along with billionaire Barry Silbert’s firm Digital Currency Group and its subsidiary, the now-bankrupt crypto bank Genesis Capital, stand accused of defrauding more than 230,000 customers, including at least 29,000 New Yorkers.
The complaint was unveiled weeks after The Post reported Cameron and Tyler Winklevoss secretly pulled $282 million in cryptocurrency from Genesis on Aug. 9, 2022. A few months later on Nov. 16, Genesis had frozen withdrawals on some $900 million in customer assets after the bank was caught up in the meltdown of Sam Bankman-Fried’s FTX empire.
“This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” New York AG Letitia James said in a statement. “My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.”
The firms face scrutiny over the now-defunct Gemini Earn program, an interest-bearing account product that teased customers with up to 8% interest on their crypto deposits. Genesis served as the sole banking partner of Gemini Earn.
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 the program’s terms of service as part of a “wise 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 the program or informed clients that anything was amiss despite its apparent misgivings.
The withdrawal also raised questions about what the twins knew about Genesis’ financial stability and when in the months before its collapse – a central theme in the New York attorney general’s lawsuit, which alleged that Gemini repeatedly assured investors the Earn program was a safe investment even though 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 safe and secure choice,” according to the state’s lawsuit. The money was intended to pay for her grandchild’s education.
“Are you going to be able to give us our money any time soon? I am crying all day. I am 73 years old and without that money I am doomed,” the unnamed grandmother said in a Nov. 29 message to Gemini, according to the complaint.
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 is not named in the suit, allegedly withdrew his entire investment of more than $100,000 from Earn on June 16 and 17 of last year. The company’s COO at the time, Noah Perlman, departed from the role in January.
In a statement, Gemini tried to spin the latest 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 massive 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 company said. “Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”
Gemini’s statement drew a harsh response from some X users.
“You are acting like CHILDREN,” one X account called “Crypto Watchdog” wrote. “Newsflash: this is YOUR FAULT, TOO!”
Gemini failed to disclose its concerns to the public – including that nearly 60% of Genesis’s loans were at one point tied to Alameda Research, the freewheeling crypto hedge fund whose risky bets led to FTX’s meltdown, the complaint alleges.
Gemini allegedly downgraded its own estimate of Genesis credit rating to a junk grade in February 2022, but continued marketing the program 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 during the Great Recession, the suit said.
Separately, Genesis and DCG are accused of attempting to conceal $1.1 billion in losses from customers in the months before the Earn program failed. Silbert, DCG and Genesis are also alleged to have misled both Gemini and the public about Genesis’ financial health.
James is seeking restitution payments for investors and disgorgement of any ill-gotten gains. Additionally, Gemini, Genesis and DCG face a ban from participating in the financial investment industry in New York.
Silbert said in a statement that he was “shocked by the baseless allegations in the Attorney General’s complaint and intend to fight these claims in court.”
DCG said it “fully intend(s) to fight the claims and look forward to being vindicated in this case.”
“DCG has always 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 complaint, and there is no evidence of any wrongdoing by DCG, Barry Silbert, or its employees.”
The lawsuit is only the latest legal headache facing the Winklevoss twins. In January, the SEC sued Gemini and Genesis for allegedly offering “unregistered securities to the public, bypassing disclosure requirements designed to protect investors.”
The Winklevoss twins and Silbert are also locked in a nasty public legal battle with each other.
The brothers — who became crypto kingpins after gaining notoriety for their legal war over Facebook with former Harvard classmate Mark Zuckerberg — sued Silbert and DCG in July, alleging that they were given a “false, misleading, and incomplete representation” of Genesis’s financial health. DCG later filed a motion to dismiss the suit, which is still pending.
The New York AG’s lawsuit was announced even as Bankman-Fried faces trial on federal charges for allegedly misappropriating billions of dollars in FTX customers funds to cover risky bets at Alameda.
Bankman-Fried’s ex-girlfriend Caroline Ellison, the former CEO of Alameda, was a star witness for the prosecution. Bankman-Fried has pleaded not guilty.
