The People of the State of New York, by Letitia James, Attorney General of the State of New York v. GEMINI TRUST COMPANY, LLC et al Document 2: Complaint
Page 1 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
-------------------------------------- X
THE PEOPLE OF THE STATE OF NEW YORK, by :
LETITIA JAMES, Attorney General of the State of
:
New York,
Plaintiff,
:
-against-
Index No.:
COMPLAINT
:
GEMINI TRUST COMPANY, LLC; GENESIS
GLOBAL CAPITAL, LLC; GENESIS ASIA PACIFIC :
PTE. LTD.; GENESIS GLOBAL HOLDCO, LLC;
DIGITAL CURRENCY GROUP, INC.; SOICHIRO :
MORO (a.k.a. MICHAEL MORO); and BARRY E.
:
SILBERT.
:
Defendants.
-------------------------------------- X
Plaintiff, the People of the State of New York, by Letitia James, Attorney General of the
State of New York (“OAG” or “Plaintiff”), alleges the following against Gemini Trust Company,
LLC (“Gemini”); Genesis Global Capital, LLC (“Genesis Capital”); Genesis Asia Pacific Pte.
Ltd. (“Genesis Asia Pacific”); Genesis Global Holdco, LLC (“Genesis Holdco,” collectively with
Genesis Capital and Genesis Asia Pacific, the “Genesis Entities”); Digital Currency Group, Inc.
(“DCG”); Soichiro “Michael” Moro (“Moro”); and Barry E. Silbert (“Silbert”) (together the
“Defendants”):
NATURE OF THE ACTION
1.
In February 2021, Gemini, a New York cryptocurrency 1 platform, and Genesis
Capital, a New York cryptocurrency lender, launched an investment program called Gemini Earn
(or “Earn”). Gemini and Genesis Capital promoted Earn using their social media accounts, a
Cryptocurrency—also referred to as a digital asset—refers to an asset issued or transferred
using a blockchain, or a distributed ledger that maintains a system of payments and receipts for
transactions. Cryptocurrency acts as a digital representation of value that functions as a medium
of exchange, a unit of account, and a store of value.
1 of 58Page 2 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
mass email campaign, media outlets, and their own websites. Gemini and Genesis Capital
marketed Earn to the public as a high-yield investment program where Gemini customers could
profit by passively investing their cryptocurrencies with Genesis Capital. Within months of its
launch, Genesis Capital held several billion dollars in Earn investor assets.
2.
On November 16, 2022, Genesis Capital announced that it was suspending all
withdrawals from Earn, leaving at least 232,000 Earn investors with more than $1 billion in
losses. These losses were the result of two distinct fraudulent schemes: one perpetrated by
Gemini (the “Gemini Scheme”), and one perpetrated by Genesis Capital and its Chief Executive
Officer (“CEO”) Moro, in coordination with Genesis Capital’s parent company DCG, DCG’s
CEO Silbert, and the other Genesis Entities (the “DCG Scheme”). Under the Gemini Scheme,
Gemini solicited money from the public with false assurances that Earn was a highly liquid
investment and that Genesis Capital was creditworthy based on Gemini’s ongoing risk
monitoring. In reality, however, Gemini’s confidential risk reports found that Genesis Capital
posed a high risk of default. Under the DCG Scheme, the Genesis Entities, Moro, DCG, and
Silbert disguised $1.1 billion in losses through a months-long campaign of misstatements,
omissions, and concealment.
3.
Under the Gemini Scheme, from February 2021, through November 16, 2022,
Gemini advertised Earn on its website as a low-risk, highly liquid “investment” that could be
“redeem[ed] at any time.” Throughout this same period, Gemini promised that Gemini vetted
Genesis Capital “through a risk management framework that reviews [Genesis Capital’s]
collateralization management process,” and that “on a periodic basis [Gemini] conducts analysis
of [Genesis Capital’s] cash flow, balance sheet, and financial statements.” Gemini further
2 of 58Page 3 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
advertised that Genesis Capital was a “trusted” and “accredited” partner and that Gemini would
ensure Genesis Capital had “appropriate risk ratios” and a “healthy financial condition.”
4.
During the same period, Gemini encouraged the public and Earn investors to
place a heightened degree of “trust and confidence” in Gemini. On its website and social media
accounts, Gemini pledged to its customers “the highest level of fiduciary obligations.” In
September 2022, Gemini’s President Cameron Winklevoss told investors with concerns about
the safety of investing in Genesis Capital and Earn that Gemini “ha[s] always and will continue
to prioritize risk management and disclosure as key pillars of our business.”
5.
Gemini’s internal risk analyses, however, contradicted its assurances about
Genesis Capital. From the start of the program in February 2021, through November 16, 2022,
Gemini’s internal risk analyses showed that Genesis Capital’s loan book was undercollateralized.
Only a year into the program, in February 2022, Gemini revised its estimate of Genesis Capital’s
credit rating from BBB (i.e., investment grade) to CCC (i.e., non-investment, or junk grade).
Indeed, from May 2022 through November 2022, Genesis Capital routinely reported to Gemini
that it had failed its own internal loan book risk assessments. When advised of Genesis Capital’s
financial condition in July 2022, one Gemini board member compared Genesis Capital to
Lehman Brothers prior to its collapse.
6.
On September 2, 2022, Gemini decided to terminate Earn. A month later, on
October 13, 2022, Gemini formally notified Genesis Capital of its decision and sent a
confidential written notice to Genesis Capital terminating all Earn agreements and demanding
the return of all investors’ assets under Earn. Yet even after Gemini decided to terminate Earn
and provided formal notification to Genesis Capital, Gemini continued to take tens of millions of
3 of 58Page 4 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
dollars’ worth of additional cryptocurrencies from Earn investors and hand those assets over to
Genesis Capital.
7.
Gemini failed to disclose to Earn investors the risks of investing in Earn and
Gemini’s termination of the Earn program. Gemini did so even while certain Gemini employees,
including an officer of Gemini, closed out their own personal positions in Gemini Earn.
8.
Earn investors were not only defrauded by Gemini, but they were also victims of
the DCG Scheme to conceal more than $1 billion in losses at the Genesis Entities. On June 13,
2022, one of the Genesis Entities’ largest borrowers, Three Arrows Capital, Ltd. (“Three
Arrows”), defaulted on billions of dollars in loans. The resulting losses created, in Genesis
Capital’s words, a “structural hole” at Genesis Capital that impaired its ability to repay its openterm liabilities—including to Earn investors.
9.
Starting in June 2022, the Genesis Entities, DCG, Moro, and Silbert conspired to
and did in fact falsely represent Genesis Capital’s financial condition to conceal this structural
hole. As part of that scheme, the Genesis Entities, DCG, Silbert, and Moro engaged in concerted
communications with the public and with counterparties to instill false confidence in Genesis
Capital’s financial health. For example, on June 15 and June 17, Genesis Capital, Silbert, Moro,
and/or DCG published tweets claiming the Genesis Entities’ balance sheet was “strong,” that
Genesis Capital was functioning “normally,” and that it had “shed the risk and moved on.” In
reality, Three Arrows’ default on June 13, 2022, created an equity deficiency at the Genesis
Entities, and Silbert had ordered Genesis Capital to limit its extension of new loans.
10.
On June 30, 2022—the last day of the financial reporting quarter—Moro and
Silbert executed an illiquid promissory note under which DCG agreed to pay Genesis Capital
$1.1 billion in a decade at only a 1% per annum interest rate (the “Promissory Note”) to
4 of 58Page 5 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
purportedly backstop losses from the Three Arrows loans. DCG never made principal or interest
payments under the Promissory Note and the structural hole remained unchanged. Nevertheless,
Genesis Capital reported this Promissory Note as an asset on its balance sheet without disclosing
to Gemini or the Earn investors its true terms.
11.
Instead of disclosing the terms of the Promissory Note to the Earn investors, the
Genesis Entities, DCG, Moro, and Silbert falsely assured counterparties and the public that
Genesis Capital was “well-capitalized” and that DCG “absorbed the losses” from the Genesis
Entities. Genesis Capital’s CEO, Moro, also tweeted that DCG had “assumed certain liabilities
of Genesis” associated with Three Arrows, leaving Genesis Capital with “adequate capital” to
continue “business as usual.” Through these statements, Genesis Capital solicited additional
assets through Earn under false pretenses.
12.
These statements were misleading descriptions of the Promissory Note and
omitted material information. DCG did not “absorb” the Genesis Entities’ losses arising from
Three Arrows’ default. Rather, those losses were reflected on financial statements that the
Genesis Entities concealed from counterparties. Nor did the Promissory Note address the
structural hole created by those losses, which elevated the risk of Genesis Capital being unable to
repay the Earn investors. Indeed, an officer at Genesis Capital objected to informing
counterparties that DCG “absorbed the loss” because they would be unable to defend this
statement in calls with counterparties.
13.
Further, DCG did not simply assume liabilities of Genesis relating to Three
Arrows. Instead, DCG replaced those short-term liabilities with an illiquid obligation that was
payable in 10 years at 1% interest. On its face, the Promissory Note failed to plug the structural
hole created by the Three Arrows default.
5 of 58Page 6 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
14.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
In furtherance of the DCG Scheme, from July 2022 through November 2022,
Genesis Capital sent Gemini, as the agent of Earn investors, reports falsely describing Genesis
Capital’s financial condition. For example, these reports falsely included the Promissory Note as
an asset that could be reduced to cash within a year. To further deceive Earn investors, Genesis
Capital concealed and suppressed disclosure of quarterly income and cash flow statements from
Gemini from June 30, 2022, through November 16, 2022. Genesis Capital also omitted
explanatory footnotes to its balance sheet because those footnotes would have revealed the
Promissory Note’s true nature. Genesis Capital’s CFO and its finance team avoided joining
phone calls with counterparties to conceal Genesis Capital’s financial condition. Instead,
members of Genesis Capital’s sales and lending teams answered financial questions using only
approved talking points that contained no explanation of the Promissory Note or its terms.
15.
Meanwhile, from July 2022 to November 2022, DCG further widened Genesis
Capital’s structural hole when it forced Genesis Capital to extend the maturity date for hundreds
of millions of dollars’ worth of loans to DCG. To date, DCG has failed to repay these loans.
16.
Finally, from February 2021, through November 16, 2022, Gemini and Genesis
Capital falsely claimed they had all “necessary governmental and other consents, approvals and
licenses” to perform their obligations under Earn. This was false because the Earn accounts were
securities and Genesis Capital failed to register in New York as a securities dealer, broker, or
salesperson as defined in GBL § 359-(e).
17.
On November 16, 2022, Genesis Capital announced that it faced a liquidity
crunch and would not return cryptocurrencies invested under Earn, leaving Earn investors unable
to redeem more than $1 billion of their investments. Some of these unsuspecting investors lost
their life savings. On November 29, 2022, one New Yorker pleaded with Gemini for the return
6 of 58Page 7 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
of her $199,000 investment, writing: “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.” No
Defendant has returned the Earn investors’ assets since the close of the program on November
16, 2022. Instead, on January 19, 2023, the Genesis Entities declared bankruptcy.
18.
Defendants’ fraudulent acts violated New York General Business Law (“GBL”)
§§ 352 et seq. (the “Martin Act”), and New York Executive Law § 63(12). Additionally, the
Genesis Entities, DCG, Silbert, and Moro violated state criminal laws, constituting repeated and
persistent illegality in violation of Executive Law § 63(12), including: New York Penal Law §
190.65 (Scheme to Defraud); and New York Penal Law § 105.05 (Conspiracy).
19.
This action seeks to permanently enjoin Defendants from engaging in fraudulent,
deceptive, and illegal acts in violation of the Martin Act and Executive Law; to permanently
enjoin Defendants from engaging in any business related to the issuance, distribution, exchange,
promotion, advertisement, negotiation, purchase, investment advice, or sale of securities or
commodities within or from this state; and to direct Defendants to pay damages, restitution, and
disgorgement of all funds and cryptocurrencies Defendants obtained in connection with its
unlawful, fraudulent, or illegal conduct, and for such other equitable relief as may be necessary.
PARTIES
20.
Plaintiff, the Attorney General of the State of New York, is authorized to bring
this action and to assert the causes of action set forth below in the name and on behalf of the
People of the State of New York pursuant to the Martin Act and Executive Law § 63(12).
21.
Defendant Gemini is a New York trust company chartered by the New York State
Department of Financial Services with a principal place of business at 315 Park Avenue South,
in New York County, New York. Cameron Winklevoss and his brother Tyler Winklevoss co-
7 of 58Page 8 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
founded Gemini. From February 2, 2021, through November 16, 2022 (the “Relevant Period”),
Cameron Winklevoss served as Gemini’s President and Tyler Winklevoss served as its CEO.
22.
Defendant Genesis Capital is a Delaware limited liability company with a
principal place of business at 250 Park Avenue South, in New York County, New York.
23.
Defendant Genesis Asia Pacific is a Singapore corporation with a business
address at 30 Raffles Place, # 23-01 Oxley @ Raffles, Singapore 048583. During the Relevant
Period, directors, officers, and employees of Genesis Asia Pacific worked from 250 Park Avenue
South, in New York County, New York.
24.
Defendant Genesis Holdco is a Delaware limited liability company with a
principal place of business at 250 Park Avenue South, in New York County, New York.
Throughout the Relevant Period, Genesis Holdco wholly owned Genesis Capital and Genesis
Asia Pacific.
25.
The Genesis Entities operated as a single entity during the Relevant Period. They
shared officers, capital, offices, IT infrastructure, and back-office functions.
26.
Genesis Holdco and Genesis Capital had no independent board of directors until
after June 30, 2022. Instead, non-party Genesis Global Trading, Inc.’s (“Genesis Trading”)
board of directors heard matters pertaining to Genesis Holdco and Genesis Capital through at
least June 30, 2022.
27.
On January 19, 2023, the Genesis Entities filed for bankruptcy in the United
States District Court for the Southern District of New York.
28.
Defendant Moro served as the CEO or its functional equivalent of the Genesis
Entities, as well as their non-party affiliates, from at least February 2, 2021, through August 17,
2022. For the same period, Moro also served on Genesis Trading’s board of directors, which
8 of 5Page 9 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
served as the de facto board of directors for Genesis Holdco through at least June 30, 2022.
Throughout the Relevant Period, Moro worked from and resided in the State of New York.
29.
Defendant DCG is a Delaware corporation doing business in the State of New
York. DCG maintains an office at 262 Harbor Drive, Stamford, CT 06902. DCG wholly owns
the Genesis Entities. During the Relevant Period, DCG’s officers also worked from the Genesis
Entities’ office at 250 Park Avenue South, in New York County, New York.
30.
Silbert was the CEO, founder, and a beneficial owner of DCG at all times during
the Relevant Period. Silbert was one of three members of DCG’s board of directors during the
Relevant Period. Officers at DCG reported directly to Silbert. Silbert is also the single-largest
shareholder of DCG. During the Relevant Period, Silbert worked from DCG’s offices in
Connecticut, as well as from Genesis’s offices at 250 Park Avenue South, in New York County,
New York. Silbert founded the Genesis Entities and served on Genesis Trading’s board of
directors from its founding until June 22, 2022.
JURISDICTION AND VENUE
31.
This Court has jurisdiction over the subject matter of this action, personal
jurisdiction over the Defendants, and authority to grant the relief requested pursuant to the
Martin Act and Executive Law § 63(12).
32.
Pursuant to CPLR § 503, venue is proper in New York County because Plaintiff is
located in New York County, with its address at 28 Liberty Street, in the County and State of
New York, and because a substantial part of the conduct, events, or omissions giving rise to the
claims occurred in New York County. Additionally, Gemini, DCG, and the Genesis Entities are
either domestic or foreign entities that transacted or were authorized to transact business in the
9 of 58Page 10 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
state or maintained a principal office in New York County. Similarly, Defendants Moro and
Silbert transacted business at 250 Park Avenue South, in New York County, New York.
FACTUAL ALLEGATIONS
I.
Background Information
A. Gemini Held Itself Out as a Cryptocurrency Exchange Throughout the Relevant
Period
33.
Throughout the Relevant Period, Gemini held itself out to the public as a New
York cryptocurrency exchange that facilitated the buying, selling, exchange, and storage of
cryptocurrencies.
34.
Gemini offered securities to the public, in the form of the Earn investment
product.
B. DCG Owns and Operates the Genesis Entities
35.
Defendant DCG owns and operates cryptocurrency businesses.
36.
DCG marketed the Genesis Entities and non-party Genesis Trading collectively as
a premier institutional cryptocurrency and financial services company. DCG marketed Genesis
Capital as its leading lending desk with billions of dollars in cryptocurrency loan originations.
37.
During the Relevant Period, DCG controlled the Genesis Entities’ key hiring
decisions, business strategy, and budget. DCG and the Genesis Entities also shared IT
infrastructure and DCG had direct access to the Genesis Entities’ books and records. Members
of DCG’s management team served as directors of Genesis Trading and Genesis Holdco, and sat
on the Genesis Entities’ Organizational Risk Committee, which managed risks arising from the
Genesis Entities’ lending business.
10 of 58Page 11 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
C. The Genesis Entities Maintained a Consolidated Lending Book
38.
Genesis Capital lent cryptocurrency and fiat currency to institutions and high-net-
worth clients. Genesis Capital funded these loans by receiving financing from third parties,
including the Earn investors.
39.
Genesis Capital profited by making money on the difference between the interest
it paid to borrow fiat currency and cryptocurrency and the interest it received from lending the
same assets to institutional and high-net-worth clients.
40.
Genesis Asia Pacific lent assets to Singapore-based clients, such as
cryptocurrency hedge fund Three Arrows, on behalf of Genesis Capital. Genesis Capital
provided virtually all of Genesis Asia Pacific’s lending capital. Genesis Asia Pacific, in turn,
repaid Genesis Capital when Genesis Asia Pacific’s own borrowers repaid Genesis Asia Pacific.
Genesis Capital and Genesis Asia Pacific shared a single loan book managed by the Genesis
Entities’ Co-Head of Trading and Lending (“Managing Director No. 1”) from New York.
41.
Genesis Capital and Genesis Asia Pacific maintained separate financial
statements, including separate balance sheets.
II.
Gemini and Genesis Capital Operated Earn as an Investment Contract
42.
On February 2, 2021, DCG subsidiary CoinDesk published a news story
announcing that Gemini and Genesis Capital had partnered to launch Earn. The news article
stated: “Gemini, the crypto exchange and custodian, is allowing its customers to earn up to 7.4%
annual percentage yield (APY) on their holdings through a partnership with crypto lender
Genesis [Capital].”
43.
To invest in Earn, investors first had to buy or hold cryptocurrency on Gemini’s
cryptocurrency platform. Gemini induced investors to purchase assets on its cryptocurrency
platform to invest in Earn. For example, beginning in March 2021, Gemini emailed its
11 of 58Page 12 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
customers to advertise a new feature allowing users “to buy and transfer [cryptocurrency]
directly into [Earn]” with a single mouse click. Gemini earned commissions on those purchases.
44.
Gemini published a list of the cryptocurrencies eligible for Earn on its webpage.
The list included bitcoin, ether, and Gemini dollar.
45.
Gemini selected Genesis Capital as the sole “approved borrower” to receive
investors’ assets under Earn.
46.
Gemini and Genesis Capital required Earn investors to enter into a “Master
Digital Asset Loan Agreement” with Gemini (as “custodian” and the “agent” of the investor) and
Genesis Capital (herein the “Earn Master Agreement”).
47.
The Earn Master Agreement set forth terms concerning the transfer and return of
cryptocurrencies and the payment of fees. The Earn Master Agreement also contained
representations and warranties, including a warranty that the parties were not insolvent.
48.
When investors elected to invest in Earn, Gemini pooled their assets in a wallet
with other investors’ assets and transferred them to Genesis Capital’s wallets on Gemini’s
platform. Genesis Capital, in turn transferred these assets from Gemini’s platform into its
external accounts and wallets, where the assets were pooled and commingled with Genesis
Capital’s other assets. Genesis Capital then used these pooled assets in its lending business.
Genesis Capital accounted for these cryptocurrencies in combined categories on its balance
sheets and financial statements, including in the balance sheet category “[i]nvestments in digital
currencies and trusts.”
49.
When Earn investors withdrew their assets, Genesis Capital had five days from
the date of the withdrawal request to return the investor’s assets, along with the yield promised to
12 of 58Page 13 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
the investor. For its services in Earn, Gemini received an agent fee, which was deducted from
the Earn investors’ assets and yield.
50.
As a large institutional lender in the cryptocurrency industry, Genesis Capital
negotiated more favorable loan terms and interest rates with borrowers than Earn investors could
negotiate on their own. Genesis Capital paid yield to the Earn investors from the interest it
earned on its loans to third parties. Thus, the Earn investors’ fortunes were tied to the effort and
expertise of Genesis Capital, and the investors shared in the profits made by Genesis Capital.
51.
During the Relevant Period, Gemini devoted a page on its website to Earn (the
“Earn Page”). On the Earn Page, Gemini advised investors to “[m]ake your crypto work for
you,” advertised that Earn investors would “receive up to 8.05% [previously 7.4%] on the
cryptocurrency you custody with Gemini,” and claimed that “[u]nlike other opportunities to earn
interest on your cryptocurrency, [with Earn] you can redeem your cryptocurrency at any time,
with no penalties, and receive it at its current market value—plus the interest you’ve earned!”
The Earn Page referred to Earn as a “yield-generating cryptocurrency investment.”
52.
The yield paid to Earn investors fluctuated. On a monthly basis, Genesis Capital
determined the types of cryptocurrencies it was willing to borrow and the yield it was willing to
pay for each type of asset. After determining its agent fees, Gemini published the yield rates for
different assets on the Earn Page. On February 1, 2021, the Earn Page set forth yield rates that
Earn investors would receive on their invested cryptocurrencies as follows:
13 of 58Page 14 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
53.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
These rates frequently changed. For example, an Earn investor who invested one
bitcoin at the start of Earn could have earned 3.05% APY on that investment in February 2021,
2.05% in May 2021, 1.65% APY in August 2021, 1.49% APY in September 2021, and 1.01% in
February 2022. On the Earn page, Gemini claimed the rates it offered were “more than 100x the
average national interest rate, among the highest rates on the market.”
54.
Gemini and Genesis Capital controlled the interest rates and cautioned their
investors: “rates may increase or decrease in the future.”
55.
From February 2, 2021, through November 16, 2022, Earn investors invested
billions of dollars in cryptocurrencies in Genesis Capital. By reason of these investments,
Gemini earned more than $22 million in agent fees, plus more than $10 million in commissions
when investors purchased cryptocurrency to invest in Earn.
14 of 58Page 15 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
III.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Gemini Scheme: Gemini Falsely Assured the Public That Earn Was a Low Risk, Highly
Liquid Investment That Could Be Redeemed “At Any Time” and That Genesis Capital
Was Creditworthy Based on Gemini’s Ongoing Risk Monitoring
A. Gemini Built Its Brand and That of Earn on Trust, Confidence, and Fiduciary
Obligations
56.
During the Relevant Period, Gemini marketed itself as a trust company “that is
held to the highest level of fiduciary obligations.” Gemini published this claim on its LinkedIn,
Facebook, and other social media pages throughout 2021 and 2022.
57.
Gemini has long sought to differentiate itself from other cryptocurrency
companies by claiming to embrace legal regulation and encouraging its customers to place a
heightened degree of trust and confidence in Gemini and its products. In January 2019,
Gemini’s head of marketing told the Wall Street Journal: “[w]e [at Gemini] believe that investors
coming into cryptocurrency deserve the exact same protections as investors in more traditional
markets, adhering to the same standards, practices, regulations and compliance protocols.”
58.
In a September 2019 statement, Gemini co-founder Tyler Winklevoss stated,
“Gemini’s philosophy of asking for permission, not forgiveness, is a first in the crypto industry.”
That year, Gemini published advertisements in the New York Times, at New York subway stops,
and on New York City taxis, declaring: “The Revolution Needs Rules” and “Crypto Without
Chaos.”
59.
Also in September 2019, Tyler Winklevoss informed customers in a blog post that
Gemini “strive[d] to always … put the interests of our customers ahead of our own and provide
proper disclosures and transparency.”
60.
Throughout 2021 and 2022, the concepts of “trust” and adherence to its “fiduciary
obligations” were central to Gemini’s marketing. Gemini’s website advertised that it was a
“fiduciary,” “[t]he most trusted crypto-native finance platform,” and that it “worked hard to
15 of 58Page 16 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
provide [customers] with a high-integrity choice and … look[ed] forward to earning and
maintaining your trust.”
61.
Gemini also owed its customers fiduciary obligations under the New York
Banking Law. During the Relevant Period, Gemini stated in its user agreement that it is “a
fiduciary under § 100 of the New York Banking Law… and a custodian that is licensed to
custody [its customers’] Digital Assets in trust on [its customers’] behalf.”
62.
Gemini deployed this trust-based branding in its promotion of Earn. In August
2021, Gemini published a blog post announcing that “more than $3 billion in loans [have been]
originated through [Earn]” and that “[i]nstilling trust in our products is central to Gemini’s ethos,
and crossing this milestone is indicative of the confidence our customers have in our business.”
63.
On September 22, 2022, Gemini’s President Cameron Winklevoss conducted an
“Ask Me Anything” (or “AMA”) on Reddit, a social media platform, where he encouraged the
public to ask questions and get real-time answers about Gemini’s products. During that AMA,
one Reddit user asked Winklevoss: “Can you please talk more about partnering with Genesis?
There is still so much fear to get back to [Earn].” Winklevoss responded:
We selected Genesis as a partner due to their experience in managing a large loan
portfolio and reputation for compliance. Since we launched Earn in Jan 2021,
Genesis has never failed to return assets when Gemini customers called back their
loans. This was the case even when the broader market was experiencing liquidity
issues earlier this year. That said, loaning your assets always carries some risk,
and we encourage you to review the Master Loan Agreement to understand your
rights as a lender. We have always and will continue to prioritize risk
management and disclosure as key pillars of our business.
(emphasis added).
64.
On November 11, 2022—just five days before Genesis Capital suspended
redemptions leaving Earn investors unable to withdraw their cryptocurrencies—Cameron and
Tyler Winklevoss shared a blog post on Gemini’s website that repeated “Gemini Is Built on
16 of 58Page 17 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Trust, Safety, and Compliance: Ask For Permission, Not For Forgiveness.” That blog post
assured investors:
[s]ince its inception eight years ago, Gemini has worked with regulatory
stakeholders and lawmakers to help shape thoughtful regulation that fosters both
consumer protection and innovation. We will continue to do this work. We have
spent considerable time applying for and becoming licensed and regulated in
various jurisdictions across the world. This is not the easier path (it is expensive
and time consuming) but we believe it is the right one.
65.
As a fiduciary, Gemini had an affirmative duty to disclose material information to
its customers concerning Earn and Genesis Capital.
B.
Gemini Falsely Assured Its Customers That Investing in Earn Was Liquid and That
Genesis Capital Was a Trusted and Accredited Counterparty
66.
From February 9, 2021, through at least November 14, 2022, Gemini referred to
Genesis Capital on the Earn Page as a “trusted partner[]” and “accredited third party borrower[]”
that Gemini “vetted through a risk management framework which reviews [Genesis Capital’s]
collateralization management process.” Throughout the same period, Gemini assured investors
on the Earn Page that “on a periodic basis [Gemini] will conduct analysis of [Genesis Capital’s]
cash flow, balance sheet, and financial statements to ensure the appropriate risk ratios and
healthy financial condition of [Genesis Capital]” and that Genesis Capital was required to “return
[Earn investors’] funds [to Earn investors] within five business days” of an investor’s withdrawal
request.
67.
In mass marketing emails sent to Gemini customers in and after February 2021,
Gemini repeated the quote set forth in the preceding paragraph.
68.
Because Gemini promised Earn investors the ability to redeem their investments
and profit “at any time,” Genesis Capital needed to carefully manage its liquidity, loan book
asset durations, and financial condition. Thus, Genesis Capital agreed to share quarterly its
financial statements and information about its collateral management process with Gemini.
17 of 58Page 18 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
18 of 58Page 19 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
74.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Gemini internally acknowledged this misrepresentation. On March 9, 2021, a risk
management employee reporting directly to Gemini’s Head of Risk corrected a similar
misstatement by stating: “[l]ending is ‘collateralized’ but not necessarily ‘overcollateralized’.”
However, the false statement was never corrected, and the February 2, 2021 article by CoinDesk,
a DCG subsidiary, containing the misstatement remained accessible to Earn investors and the
public throughout the Relevant Period.
D. Gemini’s Risk Analyses Revealed Genesis Capital Had Inappropriate Risk Ratios,
Was a “Junk” Grade Investment, and Was Neither Trusted Nor Accredited
75.
Contrary to Gemini’s claims, Earn investors faced a high risk that Genesis Capital
would default.
76.
Shortly after the launch of Earn, Gemini’s internal risk analysis of Genesis
Capital revealed concerns regarding Genesis Capital’s liquidity and financial ratios. In a
confidential internal document dated May 14, 2021, Gemini’s risk management team determined
that Genesis Capital was “highly leveraged, with over 95% debt to asset ratio” and the “majority
of [Genesis Capital’s] assets are from debts.” The risk management team also determined
“Genesis [Capital]… has low liquidity. The business is just able to cover its short-term
obligations.” Further, Gemini’s risk management team stated that while “Genesis [Capital] ha[d]
cash inflows in 2020,” those inflows were “mainly from financing activities [i.e., borrowing]”
and its 2020 “[c]ash flow from operating activities [was] negative.” Gemini further concluded
that Genesis posed a higher risk than other potential partners that Gemini considered for Earn.
77.
By May 2021, Earn investors had already placed more than $2 billion in assets
into the program. By August 2021, that number increased to $3 billion.
19 of 58Page 20 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
1. Gemini Secretly Rated Genesis Capital as “Junk”
78.
Around February 2022, Gemini’s risk management team analyzed Genesis
Capital’s financial statements for the third quarter of 2021. They stated that “[c]ompared with
peers and the overall market, Genesis[] [Capital’s] financials are generally weaker with a high
leverage ratio and low liquidity ratio, similar to companies with CCC/C rating” (also known as a
“junk” rating). Based on this credit rating, the risk management team projected that in a market
downturn, “a 50-60% default rate for Genesis [Capital] [wa]s an appropriate assumption, given
additional risks in Crypto industry vs traditional industry.”
79.
Gemini’s risk management team repeated this same language in several
documents presented to the head of Gemini’s market risk team between February 2022 and July
2022.
80.
Gemini’s CCC rating estimate reflected a marked decline in Genesis Capital’s
financial condition; before the launch of Earn, Gemini had analyzed Genesis Capital’s financial statements and estimated that Genesis Capital was a “moderate risk” and comparable to
companies with a “BBB” (i.e., investment grade) credit rating.
81.
According to Fitch Ratings, any credit rating below “BBB” is “speculative grade”
and not “investment grade.” A “CCC” issuer rating indicates a “[s]ubstantial credit risk” with
“[v]ery low margin for safety” and for whom “[d]efault is a real possibility.”
82.
Because of the risks posed by Genesis Capital’s default, beginning in May 2022,
Gemini’s management team, including its President, Cameron Winklevoss, began privately
discussing whether to terminate Earn. In May 2022, Winklevoss requested “a 1-pager on the risk
profile of [Earn] and Genesis [Capital]” to understand whether Earn “adequately compensates
[Gemini] for the risk.” That one-pager, dated June 6, 2022, reiterated the projected 50-60%
20 of 58Page 21 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
default rate for CCC companies in the event of a market downturn and predicted a potential loss
in the hundreds of millions of dollars based on that default rate.
83.
Gemini continued discussing whether to terminate Earn through the summer of
2022. On or around July 18, 2022, Gemini’s risk management and product teams compiled a
slide titled “Gemini Earn: Risk vs. Reward.” Gemini’s Associate Director of Risk and its
Command Pilot (or head) of NeoBanking (the business unit at Gemini managing Earn) reviewed
this document.
84.
In this document, Gemini acknowledged:
[the market risk team] believes Genesis [Capital] financial [sic] is similar to a
CCC company, which would be required to pay a 14%+ yield in the public debt
market. Therefore, lenders would require a ~14% yield to compensate for
Genesis [Capital]’s default risk.
(emphasis in original).
85.
The same document also indicated that Genesis Capital could lose up to $1.
billion from a single borrower’s default.
86.
Rather than disclose the risk to Earn investors so that they could take steps to
protect themselves, Gemini instead proposed using this information to protect itself. In the same
document, Gemini’s risk management team concluded Gemini was “not compensated enough” to
assume Genesis Capital’s risk of default, and that Gemini should accordingly “[w]eaken the
connection between Earn and Gemini” by changing Earn’s branding, or “[e]ducate clients on the
potential losses” to “properly set clients’ expectations.” Gemini’s risk management team
proposed these solutions to “[r]educe [the] reputational risk [to Gemini] arising from a Genesis
default.”
87.
On or around July 28, 2022, Gemini’s Board of Managers met to discuss how to
close “the disconnect between the risk profile the program has been designed for—as an agent,
21 of 58Page 22 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
Gemini is not liable for losses in case of Genesis default—and the expectation of having to make
a hard choice in case of Genesis becoming insolvent.” According to a document prepared for
this meeting, “[o]ne option [to close that disconnect] [wa]s to judge the disconnect inherently
unfixable and proceed with an orderly shutdown of Gemini Earn.”
88.
During this meeting, Gemini’s Board of Managers, Cameron Winklevoss, and
Tyler Winklevoss discussed the credit and liquidity risks associated with Genesis Capital and
Earn. Gemini’s Associate Director of Risk and its Command Pilot of NeoBanking presented to
the Board during that meeting regarding Genesis Capital’s credit and liquidity risks.
89.
During that meeting, several board members expressed doubts about Genesis
Capital’s creditworthiness. Cameron Winklevoss began the meeting by noting that Genesis
Capital’s “[b]orrowers [were] lying about their financials” and asked, “can we trust that ‘A
players’ are running Genesis and are going to make good decisions/avoid getting duped?” One
board member compared Genesis Capital’s debt-to-equity ratio to that of Lehman Brothers prior
to its collapse and said, “[i]f the market sneezes, you’re in the same situation again.” A board
member also questioned whether Genesis Capital had misrepresented information to Gemini
about its largest borrower at the time, Alameda.
90.
Immediately after this discussion, the Board of Managers and the Winklevosses
discussed whether to wind down Earn to avoid reputational damage from Genesis Capital’s
default. Between this meeting and when the Earn program was terminated, Gemini gave Genesis
Capital an additional hundreds of millions of dollars’ worth of investor assets.
2. Gemini Received Risk Reports From Genesis Capital That Showed Continued
Deterioration
91.
In addition to Genesis Capital’s financial statements, Genesis Capital also gave
Gemini risk reports indicating that Genesis Capital’s credit risk grew from May 1, 2022. In May
22 of 58Page 23 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
2022, Genesis Capital provided Gemini with weekly Credit Portfolio Metrics reports regarding
its key risk metrics, such as the percentage of Genesis Capital’s loans secured by collateral.
Each metric had a threshold that indicated Genesis Capital’s ordinary risk tolerance.
92.
From May 1, 2022, through November 16, 2022, Gemini observed that Genesis
Capital routinely exceeded these thresholds for several key risk metrics.
93.
Genesis Capital’s excesses of key risk metric thresholds grew more frequent and
consistent as this period continued. From August 16, 2022, through November 16, 2022,
Genesis Capital exceeded at least two—and as many as five—key risk metric thresholds out of
nine threshold-bearing metrics in every report it provided to Gemini.
94.
Genesis Capital’s consistent failures to manage its key risk metrics
demonstrated—or should have demonstrated—to Gemini that Genesis Capital’s collateralization
management process was failing and that Genesis Capital took inadequate steps to reduce risk.
3. Gemini Failed to Disclose to Earn Investors Overconcentration in Genesis
Capital’s Loan Book
i.
95.
Overconcentration in Alameda
On July 6, 2022, Genesis Capital began to provide reports to Gemini regarding
additional risk metrics. From July 6, 2022, through August 16, 2022, these reports showed that
Genesis Capital’s loans were heavily concentrated in a single counterparty, cryptocurrency
trading firm Alameda, which was the borrower for nearly 60% of all outstanding loans from
Genesis Capital to unaffiliated counterparties (i.e., excluding loans to DCG and its affiliates).
Further, Genesis Capital’s loans to Alameda were mostly secured with FTT tokens issued by
23 of 58Page 24 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
Alameda’s affiliate, cryptocurrency platform FTX Trading, Ltd. This counterparty concentration
and poor-quality collateral created a risk of massive losses if Alameda defaulted.
96.
On August 8, 2022, Cameron Winklevoss spoke to Genesis Capital’s Managing
Director No. 1 regarding Gemini’s concerns about Genesis Capital’s risk management practices.
During that conversation, Winklevoss said that unless DCG itself guaranteed repayment of the
Earn investments, Gemini would wind down Earn. Gemini never informed Earn investors of
these actions. Nor did Gemini ever receive a guarantee from DCG.
97.
On August 16, 2022, Genesis Capital recalled nearly $2 billion in loans to
Alameda. However, Gemini’s risk assessments showed that Genesis Capital’s risk ratios
remained above Genesis Capital’s own tolerance levels even after recalling these loans.
ii.
98.
Overconcentration in Related Parties
Without Alameda, Genesis Capital’s loan book was overconcentrated in loans to
related parties like DCG.
99.
From August 16, 2022, through November 16, 2022, nearly 50% of Genesis
Capital’s outstanding loans consisted of loans to its own affiliates, including hundreds of
millions of dollars in unsecured loans to its own parent company, DCG.
100.
Gemini failed to disclose any of these material facts to Earn investors.
E. Gemini Misled Investors Who Expressed Concern About Earn
101.
From February 2021 through at least November 14, 2022, Gemini never adjusted,
amended, or corrected its representations about the Earn investment program, the quality of its
“trusted” and “accredited” partner or the fulsomeness of its own risk management processes. In
24 of 58Page 25 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
fact, Gemini repeated these misrepresentations directly to Earn investors when they were at their
most vulnerable.
102.
June 2022 marked a period of rapid deterioration and instability in the crypto
markets, with the collapse of TerraUSD and Luna causing losses at Three Arrows and other
cryptocurrency companies.
103.
On June 16, 2022, one retail Earn investor asked Gemini via email whether “any
of [the Earn investor’s] funds have been placed with [Three Arrows]. If so, are [the investor’s]
funds in jeopardy?” Gemini responded:
Your funds in Earn are not insured by Gemini but are held with our trusted
partners. Our partners are vetted through our risk management framework and
always disclosed to you, so you know which institution has borrowed your funds.
Currently, Gemini is partnering with accredited third party borrower Genesis.
…. All loans are open-term and callable, and the customer’s experience is
seamless with Gemini’s platform, allowing quick access to earn interest and
redeem funds.
104.
Likewise, on June 27, 2022, one retail Earn investor wrote to Gemini: “[w]ith the
layoffs and what is happening with other exchanges like Celsius and Blockfi I am concerned
about Gemini. Does Gemini have any similar vulnerabilities?” Gemini responded in part: “We
founded Gemini with a security-first mentality and ethos of asking for permission, not
forgiveness. We have worked hard to provide you with a high-integrity choice and we look
forward to earning and maintaining your trust.”
105.
When this Earn investor asked about “liquidity vulnerabilities” and “risky
investments/loans that would risk my assets or cause Gemini to halt withdrawals” for Earn,
Gemini responded:
Gemini is partnering with accredited third party borrowers including Genesis,
who are vetted through a risk management framework which reviews our
partners’ collateralization management process. On a periodic basis we will
25 of 58Page 26 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
conduct an analysis of our partners’ cash flow, balance sheet, and financial
statements to ensure the appropriate risk ratios and healthy financial condition of
our partners. We will notify you when interest payments hit your account, and
you can then check balances in real time. Gemini will continue to add highquality partners in order to ensure competitive rates and allow you to diversify
your borrowers.
Two days later, this investor made an additional $1,000 ACH transfer into his Gemini account.
106.
Similarly, on July 24, 2022, another retail Earn investor asked Gemini in an email
whether it was “involved with any of the drama surrounding [Three Arrows],” and more
specifically, how events surrounding Three Arrows impacted Genesis Capital and Earn investors.
A Gemini customer service representative responded, “we are not involved in anything regarding
[Three Arrows]” and followed up with:
Genesis [is] vetted through a risk management framework which reviews our
partners’ collateralization management process. On a periodic basis we will
conduct an analysis of our partner’s cash flow, balance sheet, and financial
statements to ensure the appropriate risk ratios and healthy financial condition of
our partners.
107.
After the same investor requested additional details, Gemini’s customer service
representative responded: “all of Gemini’s business operations continue to function normally,
including Earn. Unfortunately, I do not have any more information at this time.”
108.
Through these statements, Gemini assured investors that it was safe to invest their
cryptocurrencies in Genesis Capital through Earn.
109.
During this same period, Gemini risk management personnel withdrew their own
investments from Earn. A Gemini Senior Risk Associate working on Earn withdrew his entire
remaining Earn investment—totaling over $4,000—between June 26, 2022, and September 5,
2022.
26 of 58Page 27 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
110.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Likewise, Gemini’s Chief Operations Officer, who also sat on Gemini’s
Enterprise Risk Management Committee, withdrew his entire remaining Earn investment—
totaling more than $100,000—on June 16 and June 17, 2022.
F. Gemini Secretly Sought to Terminate Earn in October 2023 While Continuing to
Induce Investments in Earn from the Public and Continuing to Turn Over Investor
Assets to Genesis Capital
111.
On September 2, 2022, Gemini’s leadership, including Cameron and Tyler
Winklevoss, decided to terminate Earn due to the reputational risk that Gemini would suffer if
Genesis Capital defaulted. On October 13, 2022, Gemini sent a confidential formal written
notice to Genesis Capital terminating all Earn Agreements on behalf of Earn investors and
demanding the return of all Earn investors’ assets. Gemini did not announce this decision to the
Earn investors and instead kept soliciting investor assets.
112.
On October 20, 2022, DCG’s CEO, Silbert, met with Gemini’s president
Cameron Winklevoss. During that meeting, according to internal DCG documents, Silbert
informed Winklevoss that Gemini was Genesis Capital’s largest and most important source of
capital and that Genesis Capital could not redeem Earn investors’ funds without Genesis Capital
declaring bankruptcy.
113.
Gemini secretly granted Genesis Capital multiple extensions to return investor
114.
Even after Gemini privately demanded the return of investor funds on October 13,
funds.
2022, it transferred tens of millions of dollars’ worth of Earn investors’ assets to Genesis Capital.
115.
Neither Gemini nor Genesis Capital disclosed to Earn investors the termination
notice, the extensions of the redemption date, or the risk that Genesis Capital would go into
bankruptcy. These were material facts for investors.
27 of 58Page 28 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
IV.
RECEIVED NYSCEF: 10/19/
DCG Scheme: The Genesis Entities, DCG, Moro and Silbert Concealed a $1 Billion
Loss From Earn Investors
116.
The Earn investors were also the victims of a separate scheme perpetrated by the
Genesis Entities, DCG, and their respective CEOs Moro and Silbert to conceal more than $billion in losses at Genesis Capital.
A. The Genesis Entities Suffer Around $1.1 Billion in Losses
117.
In the days leading up to June 13, 2022, Three Arrows was the Genesis Entities’
second-largest borrower. Although Three Arrows nominally borrowed from Genesis Asia
Pacific, Genesis Capital used Genesis Asia Pacific as a pass-through entity to lend its own assets
to Three Arrows. Genesis Asia Pacific’s loans to Three Arrows were open-term and callable by
Genesis Asia Pacific. Three Arrows paid between 8-15% interest on these loans.
118.
When Genesis Capital funded these loans, it categorized them as “receivables
from related parties” on its balance sheet, which reflected the amount that Genesis Capital gave
to Genesis Asia Pacific to lend to Three Arrows. Genesis Asia Pacific repaid Genesis Capital
around the same time that Three Arrows repaid its loans to Genesis Asia Pacific. For its part,
Genesis Asia Pacific recorded the amounts it owed to Genesis Capital in connection with these
loans as “current liabilities” on its balance sheet—i.e., liabilities payable within one year.
119.
Neither Gemini nor Genesis Capital informed Earn investors that their assets were
being passed to Genesis Asia Pacific. Indeed, Gemini did not conduct ongoing diligence into
Genesis Asia Pacific, and did not receive Genesis Asia Pacific’s financial statements on a
quarterly basis.
120.
Genesis Capital and Genesis Asia Pacific failed to conduct adequate due diligence
on Three Arrows. Contrary to assurances to Gemini on February 18, 2022, that Genesis Capital
reviewed its borrowers’ “[m]ost recent financial statements with quarterly update cadence,”
28 of 58Page 29 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
neither Genesis Capital nor Genesis Asia Pacific had received audited financial statements from
Three Arrows since July 2020. Genesis Capital and Genesis Asia Pacific also accepted from
Three Arrows illiquid collateral to secure more than $500 million in loans.
121.
On June 13, 2022, Three Arrows defaulted on billions in loans from Genesis Asia
Pacific. As a result of this default, Genesis Asia Pacific (and thus, the Genesis lending business
generally) incurred a loss of approximately $1 billion in open-term, on-demand assets. Around
the same time as Three Arrows’ default, Genesis Capital also incurred more than $100 million in
losses arising from the default of another borrower, Babel Finance.
122.
The losses from Three Arrows and Babel created negative equity value at the
Genesis Entities and created a deficit in the open-term assets available to repay Earn investors.
Genesis Capital’s internal documents stated that these losses opened a $1.1 billion structural hole
in Genesis Capital’s loan book.
B. The Genesis Entities, DCG, Moro and Silbert Plug the Structural Hole With Deceit
and Misrepresent Genesis Capitals’ Financial Condition to Counterparties
123.
DCG and Genesis Capital engaged in a communications campaign designed to
conceal Genesis Capital’s financial condition and mislead counterparties into believing Genesis
Capital was operating “business as usual.” Those counterparties included Gemini, which
conducted ongoing due diligence on behalf of the Earn investors.
124.
From June 13, 2022, through July 2022, DCG employees and executives
(including Silbert and DCG’s Chief Operating Officer (“COO”)) met with Genesis Capital’s
leadership daily, often multiple times a day. During these meetings, DCG and Genesis Capital
employees discussed how to communicate with counterparties about Three Arrows, and how to
bolster the Genesis Entities’ financial condition in the wake of these losses. During the same
29 of 58Page 30 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
period, DCG’s COO and DCG’s Head of Communications helped draft talking points documents
for use by DCG and Genesis Capital personnel in conversations with counterparties.
125.
On June 13, 2022, Silbert directed Moro and Genesis Capital’s COO to lead the
company’s response to the Three Arrows’ situation “with support and guidance from DCG.”
126.
On June 13, 2022, Silbert reported to DCG’s board that Three Arrows defaulted
and that Genesis Capital’s “unsecured exposure,” or expected loss at the time, was
“uncomfortably big (well over $500 mm now).” Silbert went on to explain that some of the
collateral provided by Three Arrows was illiquid as it consisted of shares of the Grayscale
Bitcoin Trust (“GBTC”) issued by DCG-subsidiary Grayscale Investments, LLC, which Genesis
Capital could not liquidate due to restrictions on sales of stock by the issuing company’s
affiliates. Accordingly, Silbert reported to DCG’s board that Genesis Capital was preparing for a
bank run, and that DCG would seek additional financing both for itself and Genesis. In Silbert’s
words: “Everything needs to be on the table” regarding financing.
127.
Then, on June 14, 2022, Silbert, on behalf of DCG’s board, instructed Moro and
Genesis “to continue aggressively shrinking the loan book and, until such time as we have the
right controls, risk monitoring, etc. in place—and we’re through the winter—… to limit the
extension of any new loans to counterparties.”
128.
Also on June 14, 2022, Silbert reported to DCG’s board of directors regarding
Genesis Capital’s strategy after Three Arrows’ default. In doing so, Silbert presented the option
to “[j]ettison[] the Genesis Capital business” by not supplying Genesis Capital with additional
capital to strengthen its balance sheet.
129.
Nevertheless, on June 15, 2022, two days after Three Arrows’ default, the Genesis
Entities tweeted via their shared Twitter account:
30 of 58Page 31 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
130.
Silbert and DCG both re-tweeted this statement on June 15, 2022.
131.
Indeed, that same day, Silbert wrote to Moro and other Genesis Capital personnel
in a Microsoft Teams chat that “the word on the street is that genesis is the ‘blue chip’ in this
mess…. we need to continue to perpetuate that of course.” In other words, Silbert directed
Genesis Capital personnel to perpetuate the idea that, within the cryptocurrency industry,
Genesis Capital was akin to highly stable “blue chip” companies.
132.
Then, on June 17, 2022, the Genesis Entities’ CEO Moro tweeted the following:
133.
DCG’s COO reviewed and edited these tweets before Moro posted them. In
strategizing the release of the tweets, DCG’s COO directed Moro to send these tweets “from
Moro[’s] [personal Twitter account]” despite directions from Genesis Capital’s compliance
department that these tweets should come from Genesis Capital’s corporate account. The
Genesis Entities reposted Moro’s tweets that same day.
31 of 58Page 32 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
134.
RECEIVED NYSCEF: 10/19/
Similarly, in a June 17, 2022 phone call with Gemini’s risk management
personnel, Managing Director No. 1 stated, “Genesis remains solvent and operates [business as
usual] at the moment. With the strong [loan book] and capital support from DCG, Genesis has
no concerns on business operations.” In the same call, Managing Director No. 1 further stated,
“Genesis experienced a certain amount of losses from the liquidation, but will absorb the losses
using its own balance sheet.”
135.
After the call with Gemini, Silbert and DCG’s COO were updated that same day
that Gemini “asked hard [questions] about [Three Arrows],” but that Managing Director No. “fended it off.”
136.
Gemini continued to send Genesis Capital additional investor funds after June 17,
137.
The tweets and statements to Gemini set forth above were false and misleading in
2022.
at least five ways.
138.
First, client funds had been impacted—the Three Arrows losses severely impaired
Genesis Capital’s ability to repay its counterparties, including Earn investors.
139.
Second, due to Three Arrows’ default on June 13, 2022, the Genesis Entities’
balance sheets were not strong, solvent, or capable of absorbing the losses; the Genesis Entities
suffered a loss that exceeded their equity. Indeed, in a June 21, 2022 email, Silbert informed
colleagues at DCG that “the hole in Genesis equity due to the Three Arrows exposure is
something they we [sic] will need to fill by 6/30,” and asked his colleagues to “keep [that]
between us.” Three days later, Silbert further explained to DCG personnel “[w]e just can’t allow
people inside or outside [to] question Genesis’ solvency” due to Silbert’s concern that this could
spark a bank run.
32 of 58Page 33 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
140.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Third, the tweets discussed the sale or hedging of all “liquid” collateral while
concealing that hundreds of millions of dollars’ worth of the loans were secured by illiquid
collateral that could not be sold and was not hedged.
141.
Fourth, Genesis Capital had not “shed the risk and moved on”—as of June 17,
2022, it still held a more than $1 billion receivable relating to Three Arrows as an uncollectible
asset on its balance sheet.
142.
Fifth, Genesis Capital was not operating “business as usual”; the business was
seeking to fill an equity deficiency and at Silbert’s direction on June 14, 2022, limited the
origination of new loans and started shrinking its loan book.
143.
On June 27, 2022, Genesis Capital’s then CEO, Moro, emailed DCG and Genesis
Capital executives, explaining the need to show a “well-capitalized” balance sheet to
counterparties like Gemini on June 30, 2022:
Once the equity problem is solved, the liquidity problem is much easier to solve.
I think we’ll find people to lend us additional [cryptocurrency] with a wellcapitalized 6/30 balance sheet.
And yes, at some point, our losses in [Three Arrows] and potentially Babel will
become public. But if we’re able to show our balance sheet after all of that
happened and it still looks strong, I think that 1) people will care less about the
losses and 2) we’ll be better able to operate from a place of strength going
forward.
But as I told Barry this evening, we have a lot of work to do before we can get
back to full-steam-ahead on lending. Better to think of it in wind-down mode for
the time being, and just manage liquidity as loans roll off. Then we can look to
rebuild.
144.
The next day, in a June 28, 2022 email, Moro wrote to Silbert that he had
discussed with other Genesis Capital representatives how to “best fill the equity hole”,
euphemistically referring to the Genesis Entities’ negative equity value caused by the more than
$1 billion in losses. Moro wrote that “[w]hile liquidity [was] still [Genesis Capital’s] number
33 of 58Page 34 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
one focus, [they] only ha[d] a couple of days until quarter-end.” Thus, he proposed an “overall
plan” of injecting certain assets to “plug the equity hole” and then “work on consistent
messaging to speak to the loss to counterparties when we put out [a] new balance sheet” in an
effort to “[r]estore confidence in the market and keep looking to borrow with term.” Moro
continued:
We wouldn’t necessarily need to touch the [proposed] assets [that DCG would
inject] … for liquidity purposes, it could just be for balance sheet support. And
then with a strengthened balance sheet, we would be able to source additional
unsecured funding to be able to continue to manage our liquidity and withdrawal
obligations.
145.
At this time, the Earn investors were one of Genesis Capital’s largest sources of
unsecured funding.
146.
Silbert responded: “It is certainly our hope and intention to help Genesis address
the equity-hole—hopefully by 6/30. To that end, the Genesis team should be working 24/7 with
DCG and [DCG’s subsidiary, DCG International Investments, Ltd.] teams to figure out all
possible ways to do so along the lines” outlined in Moro’s email.
147.
On June 30, 2022, Moro and Silbert entered into the $1.1 billion Promissory Note.
Under the Promissory Note, DCG agreed to pay Genesis Capital a decade later at only 1%
interest per annum to “replace” the receivables Genesis Capital would have otherwise received
from Genesis Asia Pacific for the Three Arrows loans. Genesis Capital categorized this $1.billion as an asset on its balance sheet.
148.
Silbert signed the Promissory Note as CEO of DCG.
149.
Moro signed the Promissory Note as the CEO of Genesis Capital and Genesis
Holdco, and as director of Genesis Asia Pacific.
34 of 58Page 35 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
150.
RECEIVED NYSCEF: 10/19/
DCG dictated the terms of the Promissory Note, including the ten-year duration
and 1% interest rate. DCG provided no collateral to secure its obligations under the Promissory
Note. To the contrary, DCG’s repayment of the Promissory Note was subordinate to DCG’s
repayment of an over $350 million credit facility to unrelated third parties. DCG’s pre-existing
$350 million obligation reduced the likelihood that DCG could repay the Promissory Note.
151.
On July 6, 2022, in reference to Three Arrows, Moro tweeted:
152.
DCG’s COO and Head of Communications edited and helped draft these tweets.
Silbert reviewed these tweets before Moro posted them.
153.
The tweets were false, misleading, and omitted material facts. DCG did not
simply “assume” the $1.1 billion, open-term liability related to Three Arrows, which could be
called at any time; it replaced that liability with an illiquid ten-year Promissory Note.
154.
The Promissory Note failed to ensure that Genesis Capital had sufficient capital to
operate its business. The Promissory Note required DCG to provide cash payments in no sooner
than 10 years, whereas the Three Arrows-related liabilities DCG purportedly “assumed” were
callable on demand; this created a mismatch between the Promissory Note and Genesis Capital’s
billions of dollars’ worth of on-demand obligations to Earn users. Genesis Capital’s and DCG’s
35 of 58Page 36 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
internal documents reveal that the Promissory Note’s ten-year duration and 1% interest rate
failed to address the “structural hole” caused by the Three Arrows losses. In an internal
document, Genesis Capital’s Chief Risk Officer acknowledged that the Promissory Note “wreaks
havoc on our balance sheet impacting everything we do.”
155.
Earn investors reviewed Moro’s July 6, 2022 tweets and determined them to be
material. Indeed, some Earn investors emailed Gemini customer service representatives asking
about Genesis Capital’s financial condition in the wake of Three Arrows; in response, Gemini
“encourage[d] [these investors] to take a look at Genesis’s public statements [from July 2022] for
more detailed information on its exposure to” Three Arrows—i.e., Moro’s July 6, 2022 tweets.
Thereafter, these retail investors provided additional assets to Genesis Capital. For example, one
of these retail investors invested more than $1,000 in Gemini Earn on July 20, 2022, shortly after
Gemini directed this investor to Moro’s tweets. This investor lost more than $10,000 in Gemini
Earn when Genesis Capital suspended withdrawals on November 16, 2022.
156.
Likewise, on July 13, 2022, Gemini observed in internal documents that “several
customers [using the social media website Reddit] were reassured by statements from Genesis re
[Three Arrows].”
157.
On July 6, 2022, Genesis Capital’s Head of Communications and Public Relations
sent a document titled “Talking Points to [Three Arrows] Questions” to Moro, as well as DCG’s
COO, DCG’s Head of Communications, and various other senior employees at Genesis Capital
and DCG with instructions to “review and approve.” DCG’s Head of Communications helped
draft these talking points. DCG’s COO also reviewed these talking points on July 6, 2022.
These talking points were to be used by Genesis Capital personnel in conversations with
counterparties, including Gemini.
36 of 58Page 37 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
158.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
These talking points did not provide any information regarding the Promissory
Note, its ten-year duration or 1% interest rate, or the $1.1 billion value of Genesis Capital’s
losses. Instead, the talking points included the misrepresentations that DCG “absorbed” the
losses, that Genesis Capital was “well capitalized,” and that “DCG has assumed certain liabilities
of Genesis related to [Three Arrows] to ensure [Genesis Capital] ha[d] more than adequate
capital to operate and scale our business for the long-term.”
159.
Relying on these talking points, on July 6, 2022, Genesis Entities’ Co-Head of
Trading and Lending, Managing Director No.1, informed Gemini, both over the phone and in
writing, that the Three Arrows “[l]osses [were] predominantly absorbed by and netted against
DCG balance sheet” and that Genesis Capital remained “well-capitalized.” Genesis Capital
misled investors and omitted material facts regarding its financial condition during these
communications, including that Genesis Capital’s balance sheet contained an illiquid $1.1 billion
Promissory Note.
160.
On July 18, 2022, DCG filed a bankruptcy claim against Three Arrows for more
than $1 billion. The same day, DCG’s COO instructed Managing Director No. 1 in writing to
“manage [G]emini and the other largest counterparties” because DCG was concerned that Earn
investors would withdraw their assets. Thus, on July 18, 2022, Managing Director No.1 told
Gemini’s risk personnel conducting due diligence for Earn investors: “There might be some
information relating to DCG’s claim against [Three Arrows] that gets published today or
tomorrow. None of this is new information and all of our loses [sic] have already been absorbed
by DCG/realized on our balance sheet.… All of the losses have already been reflected and are
with DCG.”
37 of 58Page 38 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
161.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Even after July 18, 2022, Gemini transferred hundreds of millions of dollars’
worth of investor assets to Genesis Capital under Earn.
162.
These statements on July 6 and 18, 2022, were false, misleading, and omitted
material information. DCG did not “absorb” the Genesis Entities’ losses. The Promissory Note
concealed those losses on Genesis Capital’s balance sheet but did not replace the lost open-term
assets. On July 7, 2022, Managing Director No. 1 described the issue to DCG’s COO as follows:
the issue is more structural … even though DCG took on liability from [Genesis
Asia Pacific], it still leaves a liquidity hole if we were to conceptually wind the
book down to nothing, the liquidity hole long-term = the $900 m2m loss on
[Three Arrows] + the lack of liquidity on the GBTC collateral which is another
$450mm, so structurally, we have about 1.345B we’d need to get in the form of
long-term debt or equity to ultimately have enough liquid capital to wind
everything down.
163.
In another communication dated July 22, 2022, Managing Director No.
explained to a high-level DCG employee that the Three Arrows losses created a “[d]uration
mismatch [at Genesis Capital] because we had [one billion] of open term assets with [Three
Arrows] which no longer exist and thus cannot be used to offset all of our open term liabilities”
including liabilities to the Earn investors. Managing Director No. 1 continued to explain that
there was an additional “asset quality mismatch because $500 [million] of the collateral we
absorbed to offset the [Three Arrows] losses was GBTC which isn’t liquid. So both of these
things on net contribute to the overall net liquidity gap [Genesis Capital] [has] as an
organization.”
164.
Further, the losses were not reflected on Genesis Capital’s balance sheet—they
were reflected on Genesis Asia Pacific’s Q2 2022 income statement, which Genesis Capital
never provided to Gemini.
38 of 58Page 39 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
165.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
On July 21, 2022, Genesis Capital’s CFO corrected some of these misstatements,
writing in an email to a member of Genesis Capital’s sales team: “[w]e should avoid using the
word ‘well-capitalized’” and “DCG didn’t absorb the loss.” The same day, Genesis Capital’s
CFO also messaged Managing Director No. 1 and several members of the lending team: “[w]e
have to stop making reference that we are well capitalized.”
166.
On July 21, 2022, Genesis Capital’s CFO informed DCG and the Genesis
Entities’ Heads of Communications of similar false statements contained in Genesis Capital’s
and DCG’s talking points. Neither DCG nor Genesis Capital corrected any prior misstatements
made to Gemini or the Earn investors.
167.
Genesis Capital’s CFO objected to these false statements to further conceal
Genesis Capital’s financial condition. As Genesis Capital’s CFO explained to Genesis Capital’s
Chief Marketing Officer on July 21, 2022: “I don’t want sales to tell people we have no losses
and then ask me to be on a call to justify that.”
168.
Genesis Capital’s CFO and its finance team avoided joining phone calls with
counterparties to conceal Genesis Capital’s financial condition. Instead, members of Genesis
Capital’s sales and lending teams answered financial questions using only approved talking
points that contained no explanation of the Promissory Note or its terms. In a private message
dated August 30, 2022, Genesis Capital’s CFO confided to a colleague:
We are only comfortable to share what will yield the best outcome for the firm.
[Having the finance team] on the call without anticipated questions is not putting
finance on the spot. It’s putting the firm on the spot. That’s what we have to
convey [to Genesis Capital personnel] [and] why [having the finance team join
counterparty calls] will be putting c suites and [the] firm “at risk.”
169.
Starting in July 2022, and continuing multiple times per week until November 16,
2022, Genesis Capital provided reports to Gemini that listed the value of Genesis Capital’s
39 of 58Page 40 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
“current assets.” A “current asset” is one that can be reduced to cash or cash equivalents within
the course of one year. These reports fraudulently categorized the Promissory Note as a current
asset, even though it was payable ten years later. In response to inquiries from Gemini, on July
28, 2022, Genesis Capital’s CFO helped Genesis Capital’s lending team draft an email to Gemini
which explained that the “current assets” column in this report contained “$1.1bn in receivables
from related parties”—i.e., the Promissory Note. This email to Gemini omitted any reference to
the Promissory Note’s duration or other terms.
C. DCG and Genesis Capital Concealed Information That Would Have Revealed Their
Deceit
170.
Genesis Capital’s CFO and other personnel directed employees not to disclose the
Promissory Note to counterparties such as Gemini. Indeed, many Genesis Capital employees
were not informed of the Promissory Note until months after its signature.
171.
When counterparties requested additional information concerning Genesis
Capital’s financial statements, Genesis Capital continued to conceal and suppress information
that would have revealed the Promissory Note or losses on counterparty defaults. In July 2022,
Genesis Capital’s CFO directed other personnel to tell counterparties that the notes to Genesis
Capital’s balance sheet—which would have explained the Promissory Note and its impact on
Genesis Capital’s balance sheet—were not prepared more frequently than the end of the year.
This was false. Genesis Capital prepared notes for its quarterly balance sheets in prior quarters,
including its unaudited balance sheets for the second and third quarters of 2021 and the first
quarter of 2022.
172.
In a July 2022 Microsoft Teams chat, Genesis Capital’s CFO confessed to her co-
workers that the “real reason” why Genesis Capital would not provide these footnotes to
counterparties was because “[i]n the notes, we are required to disclose a lot of things [w]hich
40 of 58Page 41 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
will highlight what happened” including the “assignment of liab[ilities]”—i.e., the Promissory
Note.
173.
In another Microsoft Teams chat, in September 2022, Genesis Capital’s CFO
explained to coworkers that without the footnotes, counterparties would not know about the
Promissory Note from the balance sheet alone.
174.
After June 30, 2022, Genesis Capital’s CFO, in consultation with DCG, directed
Genesis Capital personnel not to share cash flow and income statements and to withhold Genesis
Asia Pacific’s financial statements from counterparties. These financial statements would have
revealed hundreds of millions of dollars in losses during the second quarter of 2022 and would
have revealed that DCG did not “absorb the loss.”
175.
Cash flow and income statements were important to Gemini’s ability to assess
Genesis Capital’s ability to pay back Earn investors. Thus, Gemini requested Genesis Capital’s
cash flow and income statements for the second quarter of 2022 on multiple occasions after June
30, 2022.
176.
Genesis Capital ignored these requests and Gemini allowed them to do so.
177.
Before executing the Promissory Note, Genesis Capital executives, including
Moro, Genesis Capital’s CFO, and Managing Director No 1, informed DCG officers and
employees what financial statements had previously been shared with counterparties, including
Gemini. Thus, both DCG and Genesis Capital knew that they were deviating from past practices
in providing only a balance sheet to Gemini.
178.
Genesis Capital personnel soon grew concerned that Genesis Capital had provided
false information to counterparties. On September 1, 2022, Genesis Capital’s Director of
Lending reported to its interim CEO: “I’m hearing concerns from front office folks…. They’re
41 of 58Page 42 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
concerned about the accuracy of information we have shared with clients re liquidity and
variability in our equity…. There still is no liquidity infusion from DCG to fill the gap and
instead we have a ‘note’.” Nevertheless, neither DCG nor Genesis Capital corrected the
misstatements that Genesis Capital employees made to counterparties, including the Earn
investors.
179.
On October 28, 2022, Silbert authorized Genesis Capital’s Director of Lending to
disclose the Promissory Note to Gemini—a mere two weeks before Genesis Capital suspended
withdrawals and weeks after Gemini notified Genesis Capital that it was terminating Earn.
D.
DCG Created a Liquidity Crunch at Genesis Capital While Misleading Investors
into Believing the Opposite
180.
From January 2022 through July 2022, DCG and its subsidiary, DCG
International Investments, Ltd. (“DCGI”), collectively borrowed more than $800 million from
Genesis Capital.
181.
On January 24, 2022, Genesis Capital lent DCG $100 million in cash on an
unsecured basis, with a stated maturity date of July 24, 2022. DCG failed to repay that loan on
or before its maturity date. Instead, on July 25, 2022, a DCG executive informed Managing
Director No. 1 that DCG “literally [did not] have the money right now” to repay the loan.
182.
Also on July 25, 2022, the same day, DCG’s treasurer emailed Genesis Capital’s
COO and Managing Director No. 1:
We received guidance from [Silbert] to re-paper the $100mm loan (with July 24th
maturity) from Genesis to DCG by 10 months (until May 2023). Please let us
know what documentation is needed to execute on the new loan. Also, we need
to include language that the loan could be repaid early without any penalty.
183.
Managing Director No. 1 objected, stating: “given the continued pressure from
major lenders such as … Gemini … this duration mismatch will certainly put Genesis in a much
worse spot.” The same day, on July 25, 2022, DCG’s Treasurer responded that DCG “need[ed]
42 of 58Page 43 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
to preserve liquidity to meet our operating cash needs over the next few months.” After
additional objections, the next day, Managing Director No.1 relented stating: “it sounds like we
don’t have much room to push back, so we will do what DCG needs us to do.” DCG also
dictated the interest rate for this loan.
184.
Similarly, on February 23, 2022, Genesis Capital lent DCG another $100 million
in U.S. dollars on an unsecured basis, with a stated maturity date of August 23, 2022. After the
payment became due, at DCG’s insistence, Genesis Capital extended the maturity date of this
loan to May 2023.
185.
On or about June 18, 2022, Genesis Capital lent approximately 18,697 bitcoin
(valued at over $355 million as of June 18, 2022) to affiliate, DCGI, on an open-term basis.
Rather than repaying this loan in bitcoin—the denomination of the loan—DCGI partially repaid
that loan on November 10, 2022, with 25,999,457 shares of GBTC which were worth
approximately $250 million as of November 10, 2022.
186.
This repayment deprived Genesis Capital of liquidity because unlike bitcoin,
Genesis Capital neither borrowed nor lent GBTC, and could not liquidate the GBTC shares due
to affiliate sales restrictions as referenced in paragraph 126 above.
187.
After this repayment, 4,550.45 bitcoin (approximately $80 million as of
November 10, 2022) remained outstanding on Genesis Capital’s loan to DCGI. On November
10, 2022, DCG made Genesis Capital extend the maturity date for the remaining amount to May
11, 2023. These loans all remain unpaid.
V.
Gemini and Genesis Capital Misrepresented the Licensed Status of Genesis Capital
188.
Gemini and Genesis Capital also systematically deceived Earn investors regarding
the regulatory oversight of Genesis Capital. Both parties led Earn investors to believe Genesis
43 of 58Page 44 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
Capital had met its regulatory burdens to receive investments through Earn lawfully. However,
this was not the case.
189.
To invest in Earn, all Earn investors had to agree to the Earn Master Agreement
between the Earn investor, Genesis Capital, and Gemini as “custodian” and “agent” for the Earn
investors. Earn investors accessed this agreement through Gemini’s platform.
190.
The Earn Master Agreement contained several “Representations and Warranties,”
including that “[e]ach Party represent[ed] and warrant[ed] that to its knowledge the transaction
contemplated in th[e] [Earn Master Agreement] [we]re not prohibited by law or other authority
in the jurisdiction of its place of incorporation, place of principal office, or residence and that it
has necessary licenses and registrations to operate in the manner contemplated in this
Agreement.” Further, “[e]ach Party represent[ed] and warrant[ed] that it ha[d] all necessary
governmental and other consents, approvals and licenses to perform its obligations” under Earn.
191.
Genesis Capital’s Chief Legal Officer acknowledged several months before the
launch of Earn that the program “may be viewed as an investment contract under the securities
laws.”
192.
By promoting Earn on its website and social media accounts and entering into
Earn Master Agreements with Earn customers, Genesis Capital offered for sale and sold
securities without registering with the OAG as a securities dealer or a securities salesperson.
193.
Earn is a security under the Martin Act because Earn investors provided their
cryptocurrency assets to Genesis Capital with the expectation of receiving promised yields from
Genesis Capital’s efforts in deploying investors’ pooled assets.
44 of 58Page 45 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
194.
RECEIVED NYSCEF: 10/19/
Despite its failure to register with the OAG, Genesis Capital continued to
represent that it was authorized to enter into transactions with Earn investors in New York and
entered into tens of thousands of Earn Master Agreements with New Yorkers.
195.
Months before the launch of the Gemini Earn program, Gemini knew that Genesis
Capital was regulated only by FinCEN and, in fact, categorized Genesis Capital’s lack of
regulation as a “high” risk factor in internal documents.
196.
Neither Genesis Capital nor Gemini corrected the misstatement made in the Earn
Master Agreement.
VI.
Genesis Capital Announces It Cannot Repay More Than 232,000 Earn Investors
197.
On or about November 12, 2022, Genesis Capital privately sought an emergency
loan of between $750 million and $1 billion from a third party, and informed the proposed lender
that it was facing a “liquidity crunch primar[ily] due to certain illiquid assets on its balance sheet
following the events of [Three Arrows]” including (1) the Promissory Note; (2) GBTC; and (3)
unsecured loans to DCG. Genesis Capital did not—or could not—obtain this emergency loan.
198.
On November 16, 2022, Genesis Capital, using the Twitter handle
(@GenesisTrading), announced:
45 of 58Page 46 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
VII.
RECEIVED NYSCEF: 10/19/
Earn Investors Lost Over One Billion Dollars Due to Defendants’ Fraud
199.
When Genesis Capital suspended withdrawals on November 16, 2022, it owed
more than $1 billion to more than 232,000 Earn investors, including at least 29,000 New
Yorkers. Many of these investors unsuccessfully attempted to withdraw their investments in the
days around November 16, 2022.
200.
One of the Earn investors was Complainant No. 1, a 73-year-old mother,
grandmother, and resident of the State of New York. She and her husband, who are both retired,
invested their life savings of over $199,000 in Earn because they believed Gemini’s marketing
statements that Gemini was a safe and secure choice. Complainant No. 1 had hoped to use this
money to pay for her grandchild’s education. Outside of her Earn investment, she and her
husband have little savings. Defendants have failed to return any of her assets or the profits she
expected to receive.
201.
Another Earn investor, Complainant No. 2, is a 56-year-old resident of the State
of New York. Complainant No. 2 invested approximately $20,500 in Earn, virtually all his
savings. Complainant No. 2 chose Earn because he researched the product and came to believe,
based on Gemini’s statements, that Earn was more secure than other interest-bearing
cryptocurrency investments.
202.
These complainants are just two of the 232,000 investors who placed their trust in
Earn and are now desperate for relief. To date, Genesis Capital has not lifted this “temporar[y]
suspen[sion]” and neither Genesis Capital nor Gemini have returned the Earn investors’ assets.
Instead, Genesis Capital filed for bankruptcy.
46 of 58Page 47 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
CAUSES OF ACTION
FIRST CAUSE OF ACTION
Martin Act Securities Fraud—Article 23-A of the General Business Law
(Against Defendant Gemini)
203.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
204.
The cryptocurrencies bought, sold, and stored on Gemini’s exchange and used as
part of Earn, including Gemini dollar, bitcoin, and ether, among other cryptocurrencies,
constituted securities or commodities under the Martin Act, and the pooled investment program
that Gemini and Genesis Capital referred to as “Gemini Earn” constituted securities under the
Martin Act.
205.
The acts and practices alleged herein violated Article 23-A of the GBL in that
Gemini employed, or employs, or is about to employ a device, scheme or artifice to defraud or
for obtaining money or property by means of any false pretense, representation or promise in the
issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or
distribution within or from this state of securities or commodities, and constituted fraudulent
practices as defined in GBL § 352 et seq.
206.
The acts and practices alleged herein violated Article 23-A of the GBL in that
Gemini employed, or employs, or is about to employ deception, concealment, suppression, fraud,
false pretense, false promise, or materially false and misleading representations, statements, and
omissions in the issuance, exchange, purchase, sale, promotion, negotiation, advertisement,
investment advice or distribution within or from this state of securities or commodities, and
constituted fraudulent practices as defined in GBL § 352 et seq.
207.
The acts and practices alleged herein violated GBL§ 352-c(1)(a) in that Gemini
used or employed fraud, deception, concealment, suppression, or false pretense, where engaged
47 of 58Page 48 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
in to induce or promote the issuance, distribution, exchange, sale, negotiation, or purchase within
or from this state of securities or commodities, as defined in GBL § 352, regardless of whether
issuance, distribution, exchange, sale, negotiation or purchase resulted, and constituted
fraudulent practices as defined in GBL § 352 et seq.
208.
The acts and practices alleged herein violated GBL§ 352-c(1)(b), in that Gemini
made promises or representations as to the future which were beyond reasonable expectation or
unwarranted by existing circumstances where engaged in to induce or promote the issuance,
distribution, exchange, sale, negotiation, or purchase within or from this state of securities or
commodities, as defined in GBL § 352, regardless of whether issuance, distribution, exchange,
sale, negotiation or purchase resulted, and constituted fraudulent practices as defined in GBL
§ 352 et seq.
209.
The acts and practices alleged herein violated GBL§ 352-c(1)(c) in that Gemini
made representations or statements which were false, and with regard to which Gemini (i) knew
the truth; (ii) with reasonable effort could have known the truth; (iii) made no reasonable effort
to ascertain the truth; or (iv) did not have knowledge concerning the representation or statement
made, where engaged in to induce or promote the issuance, distribution, exchange, sale,
negotiation, or purchase within or from this state of securities or commodities, as defined in GBL
§ 352, regardless of whether issuance, distribution, exchange, sale, negotiation or purchase
resulted, and constituted fraudulent practices as defined in GBL § 352 et seq.
210.
The acts and practices alleged herein violated GBL§ 352-c(6) in that Gemini
intentionally engaged in fraud, deception, concealment, suppression, false pretense or fictitious
or pretended purchase or sale, or made a material false representation or statement with intent to
deceive or defraud, while engaged in inducing or promoting the issuance, distribution, exchange,
48 of 58Page 49 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
sale, negotiation or purchase within or from this state of securities or commodities, as defined in
GBL § 352, and thereby wrongfully obtained property of a value in excess of two hundred fifty
dollars, and constituted fraudulent practices as defined in GBL § 352 et seq.
SECOND CAUSE OF ACTION
Martin Act Securities Fraud—Article 23-A of the General Business Law
(Against Genesis Global Holdco, LLC, Genesis Global Capital, LLC, Genesis Asia Pacific Pte.
Ltd., Digital Currency Group, Inc., Barry Silbert and Soichiro Moro (a.k.a. Michael Moro) (the
“Genesis/DCG Defendants”))
211.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
212.
The acts and practices alleged herein violated Article 23-A of the GBL in that the
Genesis/DCG Defendants employed, or employs, or are about to employ a device, scheme or
artifice to defraud or for obtaining money or property by means of any false pretense,
representation or promise in the issuance, exchange, purchase, sale, promotion, negotiation,
advertisement, investment advice or distribution within or from this state of securities or
commodities, and constituted fraudulent practices as defined in GBL § 352 et seq.
213.
The acts and practices alleged herein violated Article 23-A of the GBL in that the
Genesis/DCG Defendants employed, or employs, or are about to employ deception,
concealment, suppression, fraud, false pretense, false promise, or materially false and misleading
representations, statements, and omissions in the issuance, exchange, purchase, sale, promotion,
negotiation, advertisement, investment advice or distribution within or from this state of
securities or commodities, and constituted fraudulent acts and fraudulent practices as defined in
GBL § 352 et seq.
214.
The acts and practices alleged herein violated GBL § 352-c(1)(a) in that the
Genesis/DCG Defendants used or employed fraud, deception, concealment, suppression, or false
49 of 58Page 50 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
pretense, where engaged in to induce or promote the issuance, distribution, exchange, sale,
negotiation, or purchase within or from this state of securities or commodities, as defined in GBL
§ 352, regardless of whether issuance, distribution, exchange, sale, negotiation or purchase
resulted, and constituted fraudulent practices as defined in GBL § 352 et seq.
215.
The acts and practices alleged herein violated GBL § 352-c(1)(b) in that the
Genesis/DCG Defendants made promises or representations as to the future which were beyond
reasonable expectation or unwarranted by existing circumstances where engaged in to induce or
promote the issuance, distribution, exchange, sale, negotiation, or purchase within or from this
state of securities or commodities, as defined in GBL § 352, regardless of whether issuance,
distribution, exchange, sale, negotiation or purchase resulted, and constituted fraudulent practices
as defined in GBL § 352 et seq.
216.
The acts and practices alleged herein violated GBL § 352-c(1)(c) in that the
Genesis/DCG Defendants made representations or statements which were false, and with regard
to which the Genesis/DCG Defendants: (i) knew the truth; (ii) with reasonable effort could have
known the truth; (iii) made no reasonable effort to ascertain the truth; or (iv) did not have
knowledge concerning the representation or statement made, where engaged in to induce or
promote the issuance, distribution, exchange, sale, negotiation, or purchase within or from this
state of securities or commodities, as defined in GBL § 352, regardless of whether issuance,
distribution, exchange, sale, negotiation or purchase resulted, and constituted fraudulent practices
as defined in GBL § 352 et seq.
217.
The acts and practices alleged herein violated GBL § 352-c(6) in that the
Genesis/DCG Defendants intentionally engaged in fraud, deception, concealment, suppression,
false pretense or fictitious or pretended purchase or sale, or made a material false representation
50 of 58Page 51 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
or statement with intent to deceive or defraud, while engaged in inducing or promoting the
issuance, distribution, exchange, sale, negotiation or purchase within or from this state of
securities or commodities, as defined in GBL § 352, and thereby wrongfully obtains property of
a value in excess of two hundred fifty dollars, and constituted fraudulent practices as defined in
GBL § 352 et seq.
THIRD CAUSE OF ACTION
Martin Act Failure to Register—General Business Law § 359-e and Regulations Promulgated
thereunder, 13 NYCRR § (Against Defendant Genesis Capital)
218.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
219.
The acts and practices alleged herein violated GBL § 359-e and regulations
promulgated thereunder, including provision of Official Compilation of Codes, Rules, and
Regulations of the State of New York Title 13, Chapter II, Subchapter A, Part 10, insofar as
Genesis Capital’s acts and practices constituted the sale or offer for sale to or purchase or offer to
purchase from the public within or from New York, any securities issued or to be issued without
filing a registration statement.
220.
Genesis Capital has not registered with OAG as a securities broker or dealer and
is not exempt from such registration requirement.
221.
Each security transaction offered or effected by the referenced Defendant within
New York constituted fraudulent practices as defined in GBL § 352 et seq.
222.
The referenced Defendant have repeatedly and persistently violated GBL § 359-
e(3) and the Official Compilation of Codes, Rules, and Regulations of the State of New York
Title 13, Chapter II, Subchapter A, Part 10.
51 of 58Page 52 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
FOURTH CAUSE OF ACTION
Repeated and Persistent Fraud—Executive Law § 63(12)
(Against Defendant Gemini)
223.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
224.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that Gemini engaged in repeated fraudulent acts or otherwise demonstrated
persistent fraud in the carrying on, conducting or transaction of business.
FIFTH CAUSE OF ACTION
Repeated and Persistent Fraud—Executive Law § 63(12)
(Against the Genesis/DCG Defendants)
225.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
226.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent acts or
otherwise demonstrated persistent fraud in the carrying on, conducting or transaction of business.
SIXTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Martin Act
(Against Defendant Gemini)
227.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
228.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that Gemini engaged in repeated fraudulent or illegal acts in violation of GBL
§§ 352, 352-c, and 353.
52 of 58Page 53 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
229.
RECEIVED NYSCEF: 10/19/
Accordingly, Gemini engaged in repeated fraudulent or illegal acts or otherwise
demonstrated persistent fraud or illegality in the carrying on, conducting or transaction of
business.
SEVENTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Martin Act
(Against the Genesis/DCG Defendants)
230.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
231.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
in violation of GBL §§ 352, 352-c, and 353.
232.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
EIGHTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Scheme to Defraud under New York Penal Law
(Against Genesis/DCG Defendants)
233.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
234.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
by violating New York Penal Law § 190.65(1)(b), Scheme to Defraud in the First Degree.
235.
Pursuant to NY Penal Law § 190.65(1)(b), a person commits a scheme to defraud
in the first degree when he or she engages in a scheme constituting a systematic ongoing course
53 of 58Page 54 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
RECEIVED NYSCEF: 10/19/
of conduct with intent to defraud more than one person or to obtain property from more than one
person by false or fraudulent pretenses, representations or promises, and so obtains property with
a value in excess of one thousand dollars from one or more such persons.
236.
The Genesis/DCG Defendants, through their conduct described above, have
engaged in a scheme constituting a systematic ongoing course of conduct with intent to defraud
more than one person or to obtain property from more than one person by false or fraudulent
pretenses, representations or promises, and so obtained property with a value in excess of one
thousand dollars from one or more such persons.
237.
With respect to the Genesis/DCG Defendants that are not natural persons, they are
liable for the additional reasons that the conduct constituting the offense is engaged in,
authorized, solicited, requested, commanded, or recklessly tolerated by the board of directors or
by a high managerial agent acting within the scope of his employment and in behalf of the
corporation.
238.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
NINTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Conspiracy in the Fifth Degree under New York Penal Law
(Against the Genesis/DCG Defendants)
239.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
240.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
by violating New York Penal Law § 105.05(1), Conspiracy in the Fifth Degree.
54 of 58Page 55 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
241.
RECEIVED NYSCEF: 10/19/
Pursuant to NY Penal Law § 105.05(1), a person commits conspiracy in the fifth
degree when, with intent that conduct constituting a felony be performed, he agrees with one or
more persons to engage in or cause the performance of such conduct.
242.
At least one of the Genesis/DCG Defendant co-conspirators engaged in an overt
act, such as preparing the Promissory Note, financial statements, and risk reports, drafting
talking points and communication related messaging, and/or corresponding with Gemini and the
public concerning Genesis Capital’s financial condition, in furtherance of the agreement.
243.
Overt acts in furtherance of the conspiracy occurred as late as 2022.
244.
With respect to the Genesis/DCG Defendants that are not natural persons, they are
liable for the additional reasons that the conduct constituting the offense is: i) engaged in,
authorized, solicited, requested, commanded, or recklessly tolerated by the board of directors or
by a high managerial agent acting within the scope of his employment and in behalf of the
corporation, or ii) is engaged in by an agent of the corporation while acting within the scope of
his employment and on behalf of the corporation, and the offense is a misdemeanor or a
violation.
245.
Thus, the Genesis/DCG Defendant engaged in a conspiracy to engage in a scheme
to defraud, and violated the Martin Act, as referenced above.
246.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
TENTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Martin Act – Failure to Register
(Against Defendant Genesis Capital)
55 of 58Page 56 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
247.
RECEIVED NYSCEF: 10/19/
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
248.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis Capital violated GBL§ 359-e and regulations promulgated
thereunder, including provision of Official Compilation of Codes, Rules, and Regulations of the
State of New York Title 13, Chapter II, Subchapter A, Part 10, insofar as Genesis Capital’s acts
and practices constituted the sale or offer for sale to or purchase or offer to purchase from the
public within or from New York, any securities issued or to be issued without filing a
registration statement.
249.
Genesis Capital has not registered with OAG as a securities broker or dealer and
is not exempt from such registration requirement.
250.
Each security transaction offered or effected by the referenced Defendant within
New York constituted fraudulent practices as defined in GBL § 352 et seq.
251.
Accordingly, Genesis Capital engaged in repeated fraudulent or illegal acts or
otherwise demonstrated persistent fraud or illegality in the carrying on, conducting or transaction
of business.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
Permanently enjoining Defendants from violating the Martin Act, Article 23-A of
the General Business Law, and Executive Law § 63(12) and from engaging in the fraudulent,
deceptive and illegal acts alleged herein;
B.
Permanently enjoining Defendants from engaging in any business related to the
issuance, offer, distribution, exchange, promotion, advertisement, negotiation, purchase,
investment advice, or sale of securities or commodities within or from this state;
56 of 58Page 57 FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
C.
INDEX NO. 452784/RECEIVED NYSCEF: 10/19/
Directing Defendants to pay damages caused, directly or indirectly, by the
fraudulent and deceptive acts and repeated fraudulent acts and persistent illegality complained of
herein plus applicable pre-judgment interest;
D.
Directing Defendants to disgorge all amounts obtained in connection with or as a
result of fraudulent and deceptive acts and repeated fraudulent acts and persistent illegality
complained of herein;
E.
Directing Defendants to make restitution of all funds obtained by Defendants
from investors in connection with the fraudulent and deceptive acts fraudulent and deceptive acts
and repeated fraudulent acts and persistent illegality complained of herein;
F.
Directing Defendants to each pay the sum of $2,000 to Plaintiff pursuant to GBL
§ 353(1);
G.
Directing such other equitable relief as may be necessary to redress Defendants’
violations of New York Law; and
[Continued on next page]
57 of 58Page 58 INDEX NO. 452784/
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO.
H.
RECEIVED NYSCEF: 10/19/
Granting such other and further relief as may be just and proper.
Dated: New York, New York
October 19,
LETITIA JAMES
Attorney General of the State of New York
By: _________________________
Geoffrey Andreu
John Ruth
Assistant Attorneys General
Gabriel Tapalaga
Senior Enforcement Counsel
Kenneth Haim
Deputy Chief, Investor Protection Burau
Shamiso Maswoswe
Chief, Investor Protection Bureau
28 Liberty Street
New York, New York Tel.: (212) 416-Counsel for the People of the State of New York
58 of
PDF Page 1
PlainSite Cover Page
PDF Page 2
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
-------------------------------------- X
THE PEOPLE OF THE STATE OF NEW YORK, by :
LETITIA JAMES, Attorney General of the State of
:
New York,
Plaintiff,
:
-against-
Index No.:
COMPLAINT
:
GEMINI TRUST COMPANY, LLC; GENESIS
GLOBAL CAPITAL, LLC; GENESIS ASIA PACIFIC :
PTE. LTD.; GENESIS GLOBAL HOLDCO, LLC;
DIGITAL CURRENCY GROUP, INC.; SOICHIRO :
MORO (a.k.a. MICHAEL MORO); and BARRY E.
:
SILBERT.
:
Defendants.
-------------------------------------- X
Plaintiff, the People of the State of New York, by Letitia James, Attorney General of the
State of New York (“OAG” or “Plaintiff”), alleges the following against Gemini Trust Company,
LLC (“Gemini”); Genesis Global Capital, LLC (“Genesis Capital”); Genesis Asia Pacific Pte.
Ltd. (“Genesis Asia Pacific”); Genesis Global Holdco, LLC (“Genesis Holdco,” collectively with
Genesis Capital and Genesis Asia Pacific, the “Genesis Entities”); Digital Currency Group, Inc.
(“DCG”); Soichiro “Michael” Moro (“Moro”); and Barry E. Silbert (“Silbert”) (together the
“Defendants”):
NATURE OF THE ACTION
1.
In February 2021, Gemini, a New York cryptocurrency 1 platform, and Genesis
Capital, a New York cryptocurrency lender, launched an investment program called Gemini Earn
(or “Earn”). Gemini and Genesis Capital promoted Earn using their social media accounts, a
1
Cryptocurrency—also referred to as a digital asset—refers to an asset issued or transferred
using a blockchain, or a distributed ledger that maintains a system of payments and receipts for
transactions. Cryptocurrency acts as a digital representation of value that functions as a medium
of exchange, a unit of account, and a store of value.
1
1 of 58
PDF Page 3
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
mass email campaign, media outlets, and their own websites. Gemini and Genesis Capital
marketed Earn to the public as a high-yield investment program where Gemini customers could
profit by passively investing their cryptocurrencies with Genesis Capital. Within months of its
launch, Genesis Capital held several billion dollars in Earn investor assets.
2.
On November 16, 2022, Genesis Capital announced that it was suspending all
withdrawals from Earn, leaving at least 232,000 Earn investors with more than $1 billion in
losses. These losses were the result of two distinct fraudulent schemes: one perpetrated by
Gemini (the “Gemini Scheme”), and one perpetrated by Genesis Capital and its Chief Executive
Officer (“CEO”) Moro, in coordination with Genesis Capital’s parent company DCG, DCG’s
CEO Silbert, and the other Genesis Entities (the “DCG Scheme”). Under the Gemini Scheme,
Gemini solicited money from the public with false assurances that Earn was a highly liquid
investment and that Genesis Capital was creditworthy based on Gemini’s ongoing risk
monitoring. In reality, however, Gemini’s confidential risk reports found that Genesis Capital
posed a high risk of default. Under the DCG Scheme, the Genesis Entities, Moro, DCG, and
Silbert disguised $1.1 billion in losses through a months-long campaign of misstatements,
omissions, and concealment.
3.
Under the Gemini Scheme, from February 2021, through November 16, 2022,
Gemini advertised Earn on its website as a low-risk, highly liquid “investment” that could be
“redeem[ed] at any time.” Throughout this same period, Gemini promised that Gemini vetted
Genesis Capital “through a risk management framework that reviews [Genesis Capital’s]
collateralization management process,” and that “on a periodic basis [Gemini] conducts analysis
of [Genesis Capital’s] cash flow, balance sheet, and financial statements.” Gemini further
2
2 of 58
PDF Page 4
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
advertised that Genesis Capital was a “trusted” and “accredited” partner and that Gemini would
ensure Genesis Capital had “appropriate risk ratios” and a “healthy financial condition.”
4.
During the same period, Gemini encouraged the public and Earn investors to
place a heightened degree of “trust and confidence” in Gemini. On its website and social media
accounts, Gemini pledged to its customers “the highest level of fiduciary obligations.” In
September 2022, Gemini’s President Cameron Winklevoss told investors with concerns about
the safety of investing in Genesis Capital and Earn that Gemini “ha[s] always and will continue
to prioritize risk management and disclosure as key pillars of our business.”
5.
Gemini’s internal risk analyses, however, contradicted its assurances about
Genesis Capital. From the start of the program in February 2021, through November 16, 2022,
Gemini’s internal risk analyses showed that Genesis Capital’s loan book was undercollateralized.
Only a year into the program, in February 2022, Gemini revised its estimate of Genesis Capital’s
credit rating from BBB (i.e., investment grade) to CCC (i.e., non-investment, or junk grade).
Indeed, from May 2022 through November 2022, Genesis Capital routinely reported to Gemini
that it had failed its own internal loan book risk assessments. When advised of Genesis Capital’s
financial condition in July 2022, one Gemini board member compared Genesis Capital to
Lehman Brothers prior to its collapse.
6.
On September 2, 2022, Gemini decided to terminate Earn. A month later, on
October 13, 2022, Gemini formally notified Genesis Capital of its decision and sent a
confidential written notice to Genesis Capital terminating all Earn agreements and demanding
the return of all investors’ assets under Earn. Yet even after Gemini decided to terminate Earn
and provided formal notification to Genesis Capital, Gemini continued to take tens of millions of
3
3 of 58
PDF Page 5
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
dollars’ worth of additional cryptocurrencies from Earn investors and hand those assets over to
Genesis Capital.
7.
Gemini failed to disclose to Earn investors the risks of investing in Earn and
Gemini’s termination of the Earn program. Gemini did so even while certain Gemini employees,
including an officer of Gemini, closed out their own personal positions in Gemini Earn.
8.
Earn investors were not only defrauded by Gemini, but they were also victims of
the DCG Scheme to conceal more than $1 billion in losses at the Genesis Entities. On June 13,
2022, one of the Genesis Entities’ largest borrowers, Three Arrows Capital, Ltd. (“Three
Arrows”), defaulted on billions of dollars in loans. The resulting losses created, in Genesis
Capital’s words, a “structural hole” at Genesis Capital that impaired its ability to repay its openterm liabilities—including to Earn investors.
9.
Starting in June 2022, the Genesis Entities, DCG, Moro, and Silbert conspired to
and did in fact falsely represent Genesis Capital’s financial condition to conceal this structural
hole. As part of that scheme, the Genesis Entities, DCG, Silbert, and Moro engaged in concerted
communications with the public and with counterparties to instill false confidence in Genesis
Capital’s financial health. For example, on June 15 and June 17, Genesis Capital, Silbert, Moro,
and/or DCG published tweets claiming the Genesis Entities’ balance sheet was “strong,” that
Genesis Capital was functioning “normally,” and that it had “shed the risk and moved on.” In
reality, Three Arrows’ default on June 13, 2022, created an equity deficiency at the Genesis
Entities, and Silbert had ordered Genesis Capital to limit its extension of new loans.
10.
On June 30, 2022—the last day of the financial reporting quarter—Moro and
Silbert executed an illiquid promissory note under which DCG agreed to pay Genesis Capital
$1.1 billion in a decade at only a 1% per annum interest rate (the “Promissory Note”) to
4
4 of 58
PDF Page 6
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
purportedly backstop losses from the Three Arrows loans. DCG never made principal or interest
payments under the Promissory Note and the structural hole remained unchanged. Nevertheless,
Genesis Capital reported this Promissory Note as an asset on its balance sheet without disclosing
to Gemini or the Earn investors its true terms.
11.
Instead of disclosing the terms of the Promissory Note to the Earn investors, the
Genesis Entities, DCG, Moro, and Silbert falsely assured counterparties and the public that
Genesis Capital was “well-capitalized” and that DCG “absorbed the losses” from the Genesis
Entities. Genesis Capital’s CEO, Moro, also tweeted that DCG had “assumed certain liabilities
of Genesis” associated with Three Arrows, leaving Genesis Capital with “adequate capital” to
continue “business as usual.” Through these statements, Genesis Capital solicited additional
assets through Earn under false pretenses.
12.
These statements were misleading descriptions of the Promissory Note and
omitted material information. DCG did not “absorb” the Genesis Entities’ losses arising from
Three Arrows’ default. Rather, those losses were reflected on financial statements that the
Genesis Entities concealed from counterparties. Nor did the Promissory Note address the
structural hole created by those losses, which elevated the risk of Genesis Capital being unable to
repay the Earn investors. Indeed, an officer at Genesis Capital objected to informing
counterparties that DCG “absorbed the loss” because they would be unable to defend this
statement in calls with counterparties.
13.
Further, DCG did not simply assume liabilities of Genesis relating to Three
Arrows. Instead, DCG replaced those short-term liabilities with an illiquid obligation that was
payable in 10 years at 1% interest. On its face, the Promissory Note failed to plug the structural
hole created by the Three Arrows default.
5
5 of 58
PDF Page 7
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
14.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
In furtherance of the DCG Scheme, from July 2022 through November 2022,
Genesis Capital sent Gemini, as the agent of Earn investors, reports falsely describing Genesis
Capital’s financial condition. For example, these reports falsely included the Promissory Note as
an asset that could be reduced to cash within a year. To further deceive Earn investors, Genesis
Capital concealed and suppressed disclosure of quarterly income and cash flow statements from
Gemini from June 30, 2022, through November 16, 2022. Genesis Capital also omitted
explanatory footnotes to its balance sheet because those footnotes would have revealed the
Promissory Note’s true nature. Genesis Capital’s CFO and its finance team avoided joining
phone calls with counterparties to conceal Genesis Capital’s financial condition. Instead,
members of Genesis Capital’s sales and lending teams answered financial questions using only
approved talking points that contained no explanation of the Promissory Note or its terms.
15.
Meanwhile, from July 2022 to November 2022, DCG further widened Genesis
Capital’s structural hole when it forced Genesis Capital to extend the maturity date for hundreds
of millions of dollars’ worth of loans to DCG. To date, DCG has failed to repay these loans.
16.
Finally, from February 2021, through November 16, 2022, Gemini and Genesis
Capital falsely claimed they had all “necessary governmental and other consents, approvals and
licenses” to perform their obligations under Earn. This was false because the Earn accounts were
securities and Genesis Capital failed to register in New York as a securities dealer, broker, or
salesperson as defined in GBL § 359-(e).
17.
On November 16, 2022, Genesis Capital announced that it faced a liquidity
crunch and would not return cryptocurrencies invested under Earn, leaving Earn investors unable
to redeem more than $1 billion of their investments. Some of these unsuspecting investors lost
their life savings. On November 29, 2022, one New Yorker pleaded with Gemini for the return
6
6 of 58
PDF Page 8
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
of her $199,000 investment, writing: “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.” No
Defendant has returned the Earn investors’ assets since the close of the program on November
16, 2022. Instead, on January 19, 2023, the Genesis Entities declared bankruptcy.
18.
Defendants’ fraudulent acts violated New York General Business Law (“GBL”)
§§ 352 et seq. (the “Martin Act”), and New York Executive Law § 63(12). Additionally, the
Genesis Entities, DCG, Silbert, and Moro violated state criminal laws, constituting repeated and
persistent illegality in violation of Executive Law § 63(12), including: New York Penal Law §
190.65 (Scheme to Defraud); and New York Penal Law § 105.05 (Conspiracy).
19.
This action seeks to permanently enjoin Defendants from engaging in fraudulent,
deceptive, and illegal acts in violation of the Martin Act and Executive Law; to permanently
enjoin Defendants from engaging in any business related to the issuance, distribution, exchange,
promotion, advertisement, negotiation, purchase, investment advice, or sale of securities or
commodities within or from this state; and to direct Defendants to pay damages, restitution, and
disgorgement of all funds and cryptocurrencies Defendants obtained in connection with its
unlawful, fraudulent, or illegal conduct, and for such other equitable relief as may be necessary.
PARTIES
20.
Plaintiff, the Attorney General of the State of New York, is authorized to bring
this action and to assert the causes of action set forth below in the name and on behalf of the
People of the State of New York pursuant to the Martin Act and Executive Law § 63(12).
21.
Defendant Gemini is a New York trust company chartered by the New York State
Department of Financial Services with a principal place of business at 315 Park Avenue South,
in New York County, New York. Cameron Winklevoss and his brother Tyler Winklevoss co-
7
7 of 58
PDF Page 9
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
founded Gemini. From February 2, 2021, through November 16, 2022 (the “Relevant Period”),
Cameron Winklevoss served as Gemini’s President and Tyler Winklevoss served as its CEO.
22.
Defendant Genesis Capital is a Delaware limited liability company with a
principal place of business at 250 Park Avenue South, in New York County, New York.
23.
Defendant Genesis Asia Pacific is a Singapore corporation with a business
address at 30 Raffles Place, # 23-01 Oxley @ Raffles, Singapore 048583. During the Relevant
Period, directors, officers, and employees of Genesis Asia Pacific worked from 250 Park Avenue
South, in New York County, New York.
24.
Defendant Genesis Holdco is a Delaware limited liability company with a
principal place of business at 250 Park Avenue South, in New York County, New York.
Throughout the Relevant Period, Genesis Holdco wholly owned Genesis Capital and Genesis
Asia Pacific.
25.
The Genesis Entities operated as a single entity during the Relevant Period. They
shared officers, capital, offices, IT infrastructure, and back-office functions.
26.
Genesis Holdco and Genesis Capital had no independent board of directors until
after June 30, 2022. Instead, non-party Genesis Global Trading, Inc.’s (“Genesis Trading”)
board of directors heard matters pertaining to Genesis Holdco and Genesis Capital through at
least June 30, 2022.
27.
On January 19, 2023, the Genesis Entities filed for bankruptcy in the United
States District Court for the Southern District of New York.
28.
Defendant Moro served as the CEO or its functional equivalent of the Genesis
Entities, as well as their non-party affiliates, from at least February 2, 2021, through August 17,
2022. For the same period, Moro also served on Genesis Trading’s board of directors, which
8
8 of 58
PDF Page 10
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
served as the de facto board of directors for Genesis Holdco through at least June 30, 2022.
Throughout the Relevant Period, Moro worked from and resided in the State of New York.
29.
Defendant DCG is a Delaware corporation doing business in the State of New
York. DCG maintains an office at 262 Harbor Drive, Stamford, CT 06902. DCG wholly owns
the Genesis Entities. During the Relevant Period, DCG’s officers also worked from the Genesis
Entities’ office at 250 Park Avenue South, in New York County, New York.
30.
Silbert was the CEO, founder, and a beneficial owner of DCG at all times during
the Relevant Period. Silbert was one of three members of DCG’s board of directors during the
Relevant Period. Officers at DCG reported directly to Silbert. Silbert is also the single-largest
shareholder of DCG. During the Relevant Period, Silbert worked from DCG’s offices in
Connecticut, as well as from Genesis’s offices at 250 Park Avenue South, in New York County,
New York. Silbert founded the Genesis Entities and served on Genesis Trading’s board of
directors from its founding until June 22, 2022.
JURISDICTION AND VENUE
31.
This Court has jurisdiction over the subject matter of this action, personal
jurisdiction over the Defendants, and authority to grant the relief requested pursuant to the
Martin Act and Executive Law § 63(12).
32.
Pursuant to CPLR § 503, venue is proper in New York County because Plaintiff is
located in New York County, with its address at 28 Liberty Street, in the County and State of
New York, and because a substantial part of the conduct, events, or omissions giving rise to the
claims occurred in New York County. Additionally, Gemini, DCG, and the Genesis Entities are
either domestic or foreign entities that transacted or were authorized to transact business in the
9
9 of 58
PDF Page 11
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
state or maintained a principal office in New York County. Similarly, Defendants Moro and
Silbert transacted business at 250 Park Avenue South, in New York County, New York.
FACTUAL ALLEGATIONS
I.
Background Information
A. Gemini Held Itself Out as a Cryptocurrency Exchange Throughout the Relevant
Period
33.
Throughout the Relevant Period, Gemini held itself out to the public as a New
York cryptocurrency exchange that facilitated the buying, selling, exchange, and storage of
cryptocurrencies.
34.
Gemini offered securities to the public, in the form of the Earn investment
product.
B. DCG Owns and Operates the Genesis Entities
35.
Defendant DCG owns and operates cryptocurrency businesses.
36.
DCG marketed the Genesis Entities and non-party Genesis Trading collectively as
a premier institutional cryptocurrency and financial services company. DCG marketed Genesis
Capital as its leading lending desk with billions of dollars in cryptocurrency loan originations.
37.
During the Relevant Period, DCG controlled the Genesis Entities’ key hiring
decisions, business strategy, and budget. DCG and the Genesis Entities also shared IT
infrastructure and DCG had direct access to the Genesis Entities’ books and records. Members
of DCG’s management team served as directors of Genesis Trading and Genesis Holdco, and sat
on the Genesis Entities’ Organizational Risk Committee, which managed risks arising from the
Genesis Entities’ lending business.
10
10 of 58
PDF Page 12
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
C. The Genesis Entities Maintained a Consolidated Lending Book
38.
Genesis Capital lent cryptocurrency and fiat currency to institutions and high-net-
worth clients. Genesis Capital funded these loans by receiving financing from third parties,
including the Earn investors.
39.
Genesis Capital profited by making money on the difference between the interest
it paid to borrow fiat currency and cryptocurrency and the interest it received from lending the
same assets to institutional and high-net-worth clients.
40.
Genesis Asia Pacific lent assets to Singapore-based clients, such as
cryptocurrency hedge fund Three Arrows, on behalf of Genesis Capital. Genesis Capital
provided virtually all of Genesis Asia Pacific’s lending capital. Genesis Asia Pacific, in turn,
repaid Genesis Capital when Genesis Asia Pacific’s own borrowers repaid Genesis Asia Pacific.
Genesis Capital and Genesis Asia Pacific shared a single loan book managed by the Genesis
Entities’ Co-Head of Trading and Lending (“Managing Director No. 1”) from New York.
41.
Genesis Capital and Genesis Asia Pacific maintained separate financial
statements, including separate balance sheets.
II.
Gemini and Genesis Capital Operated Earn as an Investment Contract
42.
On February 2, 2021, DCG subsidiary CoinDesk published a news story
announcing that Gemini and Genesis Capital had partnered to launch Earn. The news article
stated: “Gemini, the crypto exchange and custodian, is allowing its customers to earn up to 7.4%
annual percentage yield (APY) on their holdings through a partnership with crypto lender
Genesis [Capital].”
43.
To invest in Earn, investors first had to buy or hold cryptocurrency on Gemini’s
cryptocurrency platform. Gemini induced investors to purchase assets on its cryptocurrency
platform to invest in Earn. For example, beginning in March 2021, Gemini emailed its
11
11 of 58
PDF Page 13
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
customers to advertise a new feature allowing users “to buy and transfer [cryptocurrency]
directly into [Earn]” with a single mouse click. Gemini earned commissions on those purchases.
44.
Gemini published a list of the cryptocurrencies eligible for Earn on its webpage.
The list included bitcoin, ether, and Gemini dollar.
45.
Gemini selected Genesis Capital as the sole “approved borrower” to receive
investors’ assets under Earn.
46.
Gemini and Genesis Capital required Earn investors to enter into a “Master
Digital Asset Loan Agreement” with Gemini (as “custodian” and the “agent” of the investor) and
Genesis Capital (herein the “Earn Master Agreement”).
47.
The Earn Master Agreement set forth terms concerning the transfer and return of
cryptocurrencies and the payment of fees. The Earn Master Agreement also contained
representations and warranties, including a warranty that the parties were not insolvent.
48.
When investors elected to invest in Earn, Gemini pooled their assets in a wallet
with other investors’ assets and transferred them to Genesis Capital’s wallets on Gemini’s
platform. Genesis Capital, in turn transferred these assets from Gemini’s platform into its
external accounts and wallets, where the assets were pooled and commingled with Genesis
Capital’s other assets. Genesis Capital then used these pooled assets in its lending business.
Genesis Capital accounted for these cryptocurrencies in combined categories on its balance
sheets and financial statements, including in the balance sheet category “[i]nvestments in digital
currencies and trusts.”
49.
When Earn investors withdrew their assets, Genesis Capital had five days from
the date of the withdrawal request to return the investor’s assets, along with the yield promised to
12
12 of 58
PDF Page 14
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
the investor. For its services in Earn, Gemini received an agent fee, which was deducted from
the Earn investors’ assets and yield.
50.
As a large institutional lender in the cryptocurrency industry, Genesis Capital
negotiated more favorable loan terms and interest rates with borrowers than Earn investors could
negotiate on their own. Genesis Capital paid yield to the Earn investors from the interest it
earned on its loans to third parties. Thus, the Earn investors’ fortunes were tied to the effort and
expertise of Genesis Capital, and the investors shared in the profits made by Genesis Capital.
51.
During the Relevant Period, Gemini devoted a page on its website to Earn (the
“Earn Page”). On the Earn Page, Gemini advised investors to “[m]ake your crypto work for
you,” advertised that Earn investors would “receive up to 8.05% [previously 7.4%] on the
cryptocurrency you custody with Gemini,” and claimed that “[u]nlike other opportunities to earn
interest on your cryptocurrency, [with Earn] you can redeem your cryptocurrency at any time,
with no penalties, and receive it at its current market value—plus the interest you’ve earned!”
The Earn Page referred to Earn as a “yield-generating cryptocurrency investment.”
52.
The yield paid to Earn investors fluctuated. On a monthly basis, Genesis Capital
determined the types of cryptocurrencies it was willing to borrow and the yield it was willing to
pay for each type of asset. After determining its agent fees, Gemini published the yield rates for
different assets on the Earn Page. On February 1, 2021, the Earn Page set forth yield rates that
Earn investors would receive on their invested cryptocurrencies as follows:
13
13 of 58
PDF Page 15
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
53.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
These rates frequently changed. For example, an Earn investor who invested one
bitcoin at the start of Earn could have earned 3.05% APY on that investment in February 2021,
2.05% in May 2021, 1.65% APY in August 2021, 1.49% APY in September 2021, and 1.01% in
February 2022. On the Earn page, Gemini claimed the rates it offered were “more than 100x the
average national interest rate, among the highest rates on the market.”
54.
Gemini and Genesis Capital controlled the interest rates and cautioned their
investors: “rates may increase or decrease in the future.”
55.
From February 2, 2021, through November 16, 2022, Earn investors invested
billions of dollars in cryptocurrencies in Genesis Capital. By reason of these investments,
Gemini earned more than $22 million in agent fees, plus more than $10 million in commissions
when investors purchased cryptocurrency to invest in Earn.
14
14 of 58
PDF Page 16
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
III.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Gemini Scheme: Gemini Falsely Assured the Public That Earn Was a Low Risk, Highly
Liquid Investment That Could Be Redeemed “At Any Time” and That Genesis Capital
Was Creditworthy Based on Gemini’s Ongoing Risk Monitoring
A. Gemini Built Its Brand and That of Earn on Trust, Confidence, and Fiduciary
Obligations
56.
During the Relevant Period, Gemini marketed itself as a trust company “that is
held to the highest level of fiduciary obligations.” Gemini published this claim on its LinkedIn,
Facebook, and other social media pages throughout 2021 and 2022.
57.
Gemini has long sought to differentiate itself from other cryptocurrency
companies by claiming to embrace legal regulation and encouraging its customers to place a
heightened degree of trust and confidence in Gemini and its products. In January 2019,
Gemini’s head of marketing told the Wall Street Journal: “[w]e [at Gemini] believe that investors
coming into cryptocurrency deserve the exact same protections as investors in more traditional
markets, adhering to the same standards, practices, regulations and compliance protocols.”
58.
In a September 2019 statement, Gemini co-founder Tyler Winklevoss stated,
“Gemini’s philosophy of asking for permission, not forgiveness, is a first in the crypto industry.”
That year, Gemini published advertisements in the New York Times, at New York subway stops,
and on New York City taxis, declaring: “The Revolution Needs Rules” and “Crypto Without
Chaos.”
59.
Also in September 2019, Tyler Winklevoss informed customers in a blog post that
Gemini “strive[d] to always … put the interests of our customers ahead of our own and provide
proper disclosures and transparency.”
60.
Throughout 2021 and 2022, the concepts of “trust” and adherence to its “fiduciary
obligations” were central to Gemini’s marketing. Gemini’s website advertised that it was a
“fiduciary,” “[t]he most trusted crypto-native finance platform,” and that it “worked hard to
15
15 of 58
PDF Page 17
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
provide [customers] with a high-integrity choice and … look[ed] forward to earning and
maintaining your trust.”
61.
Gemini also owed its customers fiduciary obligations under the New York
Banking Law. During the Relevant Period, Gemini stated in its user agreement that it is “a
fiduciary under § 100 of the New York Banking Law… and a custodian that is licensed to
custody [its customers’] Digital Assets in trust on [its customers’] behalf.”
62.
Gemini deployed this trust-based branding in its promotion of Earn. In August
2021, Gemini published a blog post announcing that “more than $3 billion in loans [have been]
originated through [Earn]” and that “[i]nstilling trust in our products is central to Gemini’s ethos,
and crossing this milestone is indicative of the confidence our customers have in our business.”
63.
On September 22, 2022, Gemini’s President Cameron Winklevoss conducted an
“Ask Me Anything” (or “AMA”) on Reddit, a social media platform, where he encouraged the
public to ask questions and get real-time answers about Gemini’s products. During that AMA,
one Reddit user asked Winklevoss: “Can you please talk more about partnering with Genesis?
There is still so much fear to get back to [Earn].” Winklevoss responded:
We selected Genesis as a partner due to their experience in managing a large loan
portfolio and reputation for compliance. Since we launched Earn in Jan 2021,
Genesis has never failed to return assets when Gemini customers called back their
loans. This was the case even when the broader market was experiencing liquidity
issues earlier this year. That said, loaning your assets always carries some risk,
and we encourage you to review the Master Loan Agreement to understand your
rights as a lender. We have always and will continue to prioritize risk
management and disclosure as key pillars of our business.
(emphasis added).
64.
On November 11, 2022—just five days before Genesis Capital suspended
redemptions leaving Earn investors unable to withdraw their cryptocurrencies—Cameron and
Tyler Winklevoss shared a blog post on Gemini’s website that repeated “Gemini Is Built on
16
16 of 58
PDF Page 18
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Trust, Safety, and Compliance: Ask For Permission, Not For Forgiveness.” That blog post
assured investors:
[s]ince its inception eight years ago, Gemini has worked with regulatory
stakeholders and lawmakers to help shape thoughtful regulation that fosters both
consumer protection and innovation. We will continue to do this work. We have
spent considerable time applying for and becoming licensed and regulated in
various jurisdictions across the world. This is not the easier path (it is expensive
and time consuming) but we believe it is the right one.
65.
As a fiduciary, Gemini had an affirmative duty to disclose material information to
its customers concerning Earn and Genesis Capital.
B.
Gemini Falsely Assured Its Customers That Investing in Earn Was Liquid and That
Genesis Capital Was a Trusted and Accredited Counterparty
66.
From February 9, 2021, through at least November 14, 2022, Gemini referred to
Genesis Capital on the Earn Page as a “trusted partner[]” and “accredited third party borrower[]”
that Gemini “vetted through a risk management framework which reviews [Genesis Capital’s]
collateralization management process.” Throughout the same period, Gemini assured investors
on the Earn Page that “on a periodic basis [Gemini] will conduct analysis of [Genesis Capital’s]
cash flow, balance sheet, and financial statements to ensure the appropriate risk ratios and
healthy financial condition of [Genesis Capital]” and that Genesis Capital was required to “return
[Earn investors’] funds [to Earn investors] within five business days” of an investor’s withdrawal
request.
67.
In mass marketing emails sent to Gemini customers in and after February 2021,
Gemini repeated the quote set forth in the preceding paragraph.
68.
Because Gemini promised Earn investors the ability to redeem their investments
and profit “at any time,” Genesis Capital needed to carefully manage its liquidity, loan book
asset durations, and financial condition. Thus, Genesis Capital agreed to share quarterly its
financial statements and information about its collateral management process with Gemini.
17
17 of 58
PDF Page 19
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
18 of 58
PDF Page 20
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
74.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Gemini internally acknowledged this misrepresentation. On March 9, 2021, a risk
management employee reporting directly to Gemini’s Head of Risk corrected a similar
misstatement by stating: “[l]ending is ‘collateralized’ but not necessarily ‘overcollateralized’.”
However, the false statement was never corrected, and the February 2, 2021 article by CoinDesk,
a DCG subsidiary, containing the misstatement remained accessible to Earn investors and the
public throughout the Relevant Period.
D. Gemini’s Risk Analyses Revealed Genesis Capital Had Inappropriate Risk Ratios,
Was a “Junk” Grade Investment, and Was Neither Trusted Nor Accredited
75.
Contrary to Gemini’s claims, Earn investors faced a high risk that Genesis Capital
would default.
76.
Shortly after the launch of Earn, Gemini’s internal risk analysis of Genesis
Capital revealed concerns regarding Genesis Capital’s liquidity and financial ratios. In a
confidential internal document dated May 14, 2021, Gemini’s risk management team determined
that Genesis Capital was “highly leveraged, with over 95% debt to asset ratio” and the “majority
of [Genesis Capital’s] assets are from debts.” The risk management team also determined
“Genesis [Capital]… has low liquidity. The business is just able to cover its short-term
obligations.” Further, Gemini’s risk management team stated that while “Genesis [Capital] ha[d]
cash inflows in 2020,” those inflows were “mainly from financing activities [i.e., borrowing]”
and its 2020 “[c]ash flow from operating activities [was] negative.” Gemini further concluded
that Genesis posed a higher risk than other potential partners that Gemini considered for Earn.
77.
By May 2021, Earn investors had already placed more than $2 billion in assets
into the program. By August 2021, that number increased to $3 billion.
19
19 of 58
PDF Page 21
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
1. Gemini Secretly Rated Genesis Capital as “Junk”
78.
Around February 2022, Gemini’s risk management team analyzed Genesis
Capital’s financial statements for the third quarter of 2021. They stated that “[c]ompared with
peers and the overall market, Genesis[] [Capital’s] financials are generally weaker with a high
leverage ratio and low liquidity ratio, similar to companies with CCC/C rating” (also known as a
“junk” rating). Based on this credit rating, the risk management team projected that in a market
downturn, “a 50-60% default rate for Genesis [Capital] [wa]s an appropriate assumption, given
additional risks in Crypto industry vs traditional industry.”
79.
Gemini’s risk management team repeated this same language in several
documents presented to the head of Gemini’s market risk team between February 2022 and July
2022.
80.
Gemini’s CCC rating estimate reflected a marked decline in Genesis Capital’s
financial condition; before the launch of Earn, Gemini had analyzed Genesis Capital’s 2019
financial statements and estimated that Genesis Capital was a “moderate risk” and comparable to
companies with a “BBB” (i.e., investment grade) credit rating.
81.
According to Fitch Ratings, any credit rating below “BBB” is “speculative grade”
and not “investment grade.” A “CCC” issuer rating indicates a “[s]ubstantial credit risk” with
“[v]ery low margin for safety” and for whom “[d]efault is a real possibility.”
82.
Because of the risks posed by Genesis Capital’s default, beginning in May 2022,
Gemini’s management team, including its President, Cameron Winklevoss, began privately
discussing whether to terminate Earn. In May 2022, Winklevoss requested “a 1-pager on the risk
profile of [Earn] and Genesis [Capital]” to understand whether Earn “adequately compensates
[Gemini] for the risk.” That one-pager, dated June 6, 2022, reiterated the projected 50-60%
20
20 of 58
PDF Page 22
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
default rate for CCC companies in the event of a market downturn and predicted a potential loss
in the hundreds of millions of dollars based on that default rate.
83.
Gemini continued discussing whether to terminate Earn through the summer of
2022. On or around July 18, 2022, Gemini’s risk management and product teams compiled a
slide titled “Gemini Earn: Risk vs. Reward.” Gemini’s Associate Director of Risk and its
Command Pilot (or head) of NeoBanking (the business unit at Gemini managing Earn) reviewed
this document.
84.
In this document, Gemini acknowledged:
[the market risk team] believes Genesis [Capital] financial [sic] is similar to a
CCC company, which would be required to pay a 14%+ yield in the public debt
market. Therefore, lenders would require a ~14% yield to compensate for
Genesis [Capital]’s default risk.
(emphasis in original).
85.
The same document also indicated that Genesis Capital could lose up to $1.4
billion from a single borrower’s default.
86.
Rather than disclose the risk to Earn investors so that they could take steps to
protect themselves, Gemini instead proposed using this information to protect itself. In the same
document, Gemini’s risk management team concluded Gemini was “not compensated enough” to
assume Genesis Capital’s risk of default, and that Gemini should accordingly “[w]eaken the
connection between Earn and Gemini” by changing Earn’s branding, or “[e]ducate clients on the
potential losses” to “properly set clients’ expectations.” Gemini’s risk management team
proposed these solutions to “[r]educe [the] reputational risk [to Gemini] arising from a Genesis
default.”
87.
On or around July 28, 2022, Gemini’s Board of Managers met to discuss how to
close “the disconnect between the risk profile the program has been designed for—as an agent,
21
21 of 58
PDF Page 23
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
Gemini is not liable for losses in case of Genesis default—and the expectation of having to make
a hard choice in case of Genesis becoming insolvent.” According to a document prepared for
this meeting, “[o]ne option [to close that disconnect] [wa]s to judge the disconnect inherently
unfixable and proceed with an orderly shutdown of Gemini Earn.”
88.
During this meeting, Gemini’s Board of Managers, Cameron Winklevoss, and
Tyler Winklevoss discussed the credit and liquidity risks associated with Genesis Capital and
Earn. Gemini’s Associate Director of Risk and its Command Pilot of NeoBanking presented to
the Board during that meeting regarding Genesis Capital’s credit and liquidity risks.
89.
During that meeting, several board members expressed doubts about Genesis
Capital’s creditworthiness. Cameron Winklevoss began the meeting by noting that Genesis
Capital’s “[b]orrowers [were] lying about their financials” and asked, “can we trust that ‘A
players’ are running Genesis and are going to make good decisions/avoid getting duped?” One
board member compared Genesis Capital’s debt-to-equity ratio to that of Lehman Brothers prior
to its collapse and said, “[i]f the market sneezes, you’re in the same situation again.” A board
member also questioned whether Genesis Capital had misrepresented information to Gemini
about its largest borrower at the time, Alameda.
90.
Immediately after this discussion, the Board of Managers and the Winklevosses
discussed whether to wind down Earn to avoid reputational damage from Genesis Capital’s
default. Between this meeting and when the Earn program was terminated, Gemini gave Genesis
Capital an additional hundreds of millions of dollars’ worth of investor assets.
2. Gemini Received Risk Reports From Genesis Capital That Showed Continued
Deterioration
91.
In addition to Genesis Capital’s financial statements, Genesis Capital also gave
Gemini risk reports indicating that Genesis Capital’s credit risk grew from May 1, 2022. In May
22
22 of 58
PDF Page 24
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
2022, Genesis Capital provided Gemini with weekly Credit Portfolio Metrics reports regarding
its key risk metrics, such as the percentage of Genesis Capital’s loans secured by collateral.
Each metric had a threshold that indicated Genesis Capital’s ordinary risk tolerance.
92.
From May 1, 2022, through November 16, 2022, Gemini observed that Genesis
Capital routinely exceeded these thresholds for several key risk metrics.
93.
Genesis Capital’s excesses of key risk metric thresholds grew more frequent and
consistent as this period continued. From August 16, 2022, through November 16, 2022,
Genesis Capital exceeded at least two—and as many as five—key risk metric thresholds out of
nine threshold-bearing metrics in every report it provided to Gemini.
94.
Genesis Capital’s consistent failures to manage its key risk metrics
demonstrated—or should have demonstrated—to Gemini that Genesis Capital’s collateralization
management process was failing and that Genesis Capital took inadequate steps to reduce risk.
3. Gemini Failed to Disclose to Earn Investors Overconcentration in Genesis
Capital’s Loan Book
i.
95.
Overconcentration in Alameda
On July 6, 2022, Genesis Capital began to provide reports to Gemini regarding
additional risk metrics. From July 6, 2022, through August 16, 2022, these reports showed that
Genesis Capital’s loans were heavily concentrated in a single counterparty, cryptocurrency
trading firm Alameda, which was the borrower for nearly 60% of all outstanding loans from
Genesis Capital to unaffiliated counterparties (i.e., excluding loans to DCG and its affiliates).
Further, Genesis Capital’s loans to Alameda were mostly secured with FTT tokens issued by
23
23 of 58
PDF Page 25
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
Alameda’s affiliate, cryptocurrency platform FTX Trading, Ltd. This counterparty concentration
and poor-quality collateral created a risk of massive losses if Alameda defaulted.
96.
On August 8, 2022, Cameron Winklevoss spoke to Genesis Capital’s Managing
Director No. 1 regarding Gemini’s concerns about Genesis Capital’s risk management practices.
During that conversation, Winklevoss said that unless DCG itself guaranteed repayment of the
Earn investments, Gemini would wind down Earn. Gemini never informed Earn investors of
these actions. Nor did Gemini ever receive a guarantee from DCG.
97.
On August 16, 2022, Genesis Capital recalled nearly $2 billion in loans to
Alameda. However, Gemini’s risk assessments showed that Genesis Capital’s risk ratios
remained above Genesis Capital’s own tolerance levels even after recalling these loans.
ii.
98.
Overconcentration in Related Parties
Without Alameda, Genesis Capital’s loan book was overconcentrated in loans to
related parties like DCG.
99.
From August 16, 2022, through November 16, 2022, nearly 50% of Genesis
Capital’s outstanding loans consisted of loans to its own affiliates, including hundreds of
millions of dollars in unsecured loans to its own parent company, DCG.
100.
Gemini failed to disclose any of these material facts to Earn investors.
E. Gemini Misled Investors Who Expressed Concern About Earn
101.
From February 2021 through at least November 14, 2022, Gemini never adjusted,
amended, or corrected its representations about the Earn investment program, the quality of its
“trusted” and “accredited” partner or the fulsomeness of its own risk management processes. In
24
24 of 58
PDF Page 26
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
fact, Gemini repeated these misrepresentations directly to Earn investors when they were at their
most vulnerable.
102.
June 2022 marked a period of rapid deterioration and instability in the crypto
markets, with the collapse of TerraUSD and Luna causing losses at Three Arrows and other
cryptocurrency companies.
103.
On June 16, 2022, one retail Earn investor asked Gemini via email whether “any
of [the Earn investor’s] funds have been placed with [Three Arrows]. If so, are [the investor’s]
funds in jeopardy?” Gemini responded:
Your funds in Earn are not insured by Gemini but are held with our trusted
partners. Our partners are vetted through our risk management framework and
always disclosed to you, so you know which institution has borrowed your funds.
Currently, Gemini is partnering with accredited third party borrower Genesis.
…. All loans are open-term and callable, and the customer’s experience is
seamless with Gemini’s platform, allowing quick access to earn interest and
redeem funds.
104.
Likewise, on June 27, 2022, one retail Earn investor wrote to Gemini: “[w]ith the
layoffs and what is happening with other exchanges like Celsius and Blockfi I am concerned
about Gemini. Does Gemini have any similar vulnerabilities?” Gemini responded in part: “We
founded Gemini with a security-first mentality and ethos of asking for permission, not
forgiveness. We have worked hard to provide you with a high-integrity choice and we look
forward to earning and maintaining your trust.”
105.
When this Earn investor asked about “liquidity vulnerabilities” and “risky
investments/loans that would risk my assets or cause Gemini to halt withdrawals” for Earn,
Gemini responded:
Gemini is partnering with accredited third party borrowers including Genesis,
who are vetted through a risk management framework which reviews our
partners’ collateralization management process. On a periodic basis we will
25
25 of 58
PDF Page 27
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
conduct an analysis of our partners’ cash flow, balance sheet, and financial
statements to ensure the appropriate risk ratios and healthy financial condition of
our partners. We will notify you when interest payments hit your account, and
you can then check balances in real time. Gemini will continue to add highquality partners in order to ensure competitive rates and allow you to diversify
your borrowers.
Two days later, this investor made an additional $1,000 ACH transfer into his Gemini account.
106.
Similarly, on July 24, 2022, another retail Earn investor asked Gemini in an email
whether it was “involved with any of the drama surrounding [Three Arrows],” and more
specifically, how events surrounding Three Arrows impacted Genesis Capital and Earn investors.
A Gemini customer service representative responded, “we are not involved in anything regarding
[Three Arrows]” and followed up with:
Genesis [is] vetted through a risk management framework which reviews our
partners’ collateralization management process. On a periodic basis we will
conduct an analysis of our partner’s cash flow, balance sheet, and financial
statements to ensure the appropriate risk ratios and healthy financial condition of
our partners.
107.
After the same investor requested additional details, Gemini’s customer service
representative responded: “all of Gemini’s business operations continue to function normally,
including Earn. Unfortunately, I do not have any more information at this time.”
108.
Through these statements, Gemini assured investors that it was safe to invest their
cryptocurrencies in Genesis Capital through Earn.
109.
During this same period, Gemini risk management personnel withdrew their own
investments from Earn. A Gemini Senior Risk Associate working on Earn withdrew his entire
remaining Earn investment—totaling over $4,000—between June 26, 2022, and September 5,
2022.
26
26 of 58
PDF Page 28
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
110.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Likewise, Gemini’s Chief Operations Officer, who also sat on Gemini’s
Enterprise Risk Management Committee, withdrew his entire remaining Earn investment—
totaling more than $100,000—on June 16 and June 17, 2022.
F. Gemini Secretly Sought to Terminate Earn in October 2023 While Continuing to
Induce Investments in Earn from the Public and Continuing to Turn Over Investor
Assets to Genesis Capital
111.
On September 2, 2022, Gemini’s leadership, including Cameron and Tyler
Winklevoss, decided to terminate Earn due to the reputational risk that Gemini would suffer if
Genesis Capital defaulted. On October 13, 2022, Gemini sent a confidential formal written
notice to Genesis Capital terminating all Earn Agreements on behalf of Earn investors and
demanding the return of all Earn investors’ assets. Gemini did not announce this decision to the
Earn investors and instead kept soliciting investor assets.
112.
On October 20, 2022, DCG’s CEO, Silbert, met with Gemini’s president
Cameron Winklevoss. During that meeting, according to internal DCG documents, Silbert
informed Winklevoss that Gemini was Genesis Capital’s largest and most important source of
capital and that Genesis Capital could not redeem Earn investors’ funds without Genesis Capital
declaring bankruptcy.
113.
Gemini secretly granted Genesis Capital multiple extensions to return investor
114.
Even after Gemini privately demanded the return of investor funds on October 13,
funds.
2022, it transferred tens of millions of dollars’ worth of Earn investors’ assets to Genesis Capital.
115.
Neither Gemini nor Genesis Capital disclosed to Earn investors the termination
notice, the extensions of the redemption date, or the risk that Genesis Capital would go into
bankruptcy. These were material facts for investors.
27
27 of 58
PDF Page 29
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
IV.
RECEIVED NYSCEF: 10/19/2023
DCG Scheme: The Genesis Entities, DCG, Moro and Silbert Concealed a $1 Billion
Loss From Earn Investors
116.
The Earn investors were also the victims of a separate scheme perpetrated by the
Genesis Entities, DCG, and their respective CEOs Moro and Silbert to conceal more than $1
billion in losses at Genesis Capital.
A. The Genesis Entities Suffer Around $1.1 Billion in Losses
117.
In the days leading up to June 13, 2022, Three Arrows was the Genesis Entities’
second-largest borrower. Although Three Arrows nominally borrowed from Genesis Asia
Pacific, Genesis Capital used Genesis Asia Pacific as a pass-through entity to lend its own assets
to Three Arrows. Genesis Asia Pacific’s loans to Three Arrows were open-term and callable by
Genesis Asia Pacific. Three Arrows paid between 8-15% interest on these loans.
118.
When Genesis Capital funded these loans, it categorized them as “receivables
from related parties” on its balance sheet, which reflected the amount that Genesis Capital gave
to Genesis Asia Pacific to lend to Three Arrows. Genesis Asia Pacific repaid Genesis Capital
around the same time that Three Arrows repaid its loans to Genesis Asia Pacific. For its part,
Genesis Asia Pacific recorded the amounts it owed to Genesis Capital in connection with these
loans as “current liabilities” on its balance sheet—i.e., liabilities payable within one year.
119.
Neither Gemini nor Genesis Capital informed Earn investors that their assets were
being passed to Genesis Asia Pacific. Indeed, Gemini did not conduct ongoing diligence into
Genesis Asia Pacific, and did not receive Genesis Asia Pacific’s financial statements on a
quarterly basis.
120.
Genesis Capital and Genesis Asia Pacific failed to conduct adequate due diligence
on Three Arrows. Contrary to assurances to Gemini on February 18, 2022, that Genesis Capital
reviewed its borrowers’ “[m]ost recent financial statements with quarterly update cadence,”
28
28 of 58
PDF Page 30
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
neither Genesis Capital nor Genesis Asia Pacific had received audited financial statements from
Three Arrows since July 2020. Genesis Capital and Genesis Asia Pacific also accepted from
Three Arrows illiquid collateral to secure more than $500 million in loans.
121.
On June 13, 2022, Three Arrows defaulted on billions in loans from Genesis Asia
Pacific. As a result of this default, Genesis Asia Pacific (and thus, the Genesis lending business
generally) incurred a loss of approximately $1 billion in open-term, on-demand assets. Around
the same time as Three Arrows’ default, Genesis Capital also incurred more than $100 million in
losses arising from the default of another borrower, Babel Finance.
122.
The losses from Three Arrows and Babel created negative equity value at the
Genesis Entities and created a deficit in the open-term assets available to repay Earn investors.
Genesis Capital’s internal documents stated that these losses opened a $1.1 billion structural hole
in Genesis Capital’s loan book.
B. The Genesis Entities, DCG, Moro and Silbert Plug the Structural Hole With Deceit
and Misrepresent Genesis Capitals’ Financial Condition to Counterparties
123.
DCG and Genesis Capital engaged in a communications campaign designed to
conceal Genesis Capital’s financial condition and mislead counterparties into believing Genesis
Capital was operating “business as usual.” Those counterparties included Gemini, which
conducted ongoing due diligence on behalf of the Earn investors.
124.
From June 13, 2022, through July 2022, DCG employees and executives
(including Silbert and DCG’s Chief Operating Officer (“COO”)) met with Genesis Capital’s
leadership daily, often multiple times a day. During these meetings, DCG and Genesis Capital
employees discussed how to communicate with counterparties about Three Arrows, and how to
bolster the Genesis Entities’ financial condition in the wake of these losses. During the same
29
29 of 58
PDF Page 31
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
period, DCG’s COO and DCG’s Head of Communications helped draft talking points documents
for use by DCG and Genesis Capital personnel in conversations with counterparties.
125.
On June 13, 2022, Silbert directed Moro and Genesis Capital’s COO to lead the
company’s response to the Three Arrows’ situation “with support and guidance from DCG.”
126.
On June 13, 2022, Silbert reported to DCG’s board that Three Arrows defaulted
and that Genesis Capital’s “unsecured exposure,” or expected loss at the time, was
“uncomfortably big (well over $500 mm now).” Silbert went on to explain that some of the
collateral provided by Three Arrows was illiquid as it consisted of shares of the Grayscale
Bitcoin Trust (“GBTC”) issued by DCG-subsidiary Grayscale Investments, LLC, which Genesis
Capital could not liquidate due to restrictions on sales of stock by the issuing company’s
affiliates. Accordingly, Silbert reported to DCG’s board that Genesis Capital was preparing for a
bank run, and that DCG would seek additional financing both for itself and Genesis. In Silbert’s
words: “Everything needs to be on the table” regarding financing.
127.
Then, on June 14, 2022, Silbert, on behalf of DCG’s board, instructed Moro and
Genesis “to continue aggressively shrinking the loan book and, until such time as we have the
right controls, risk monitoring, etc. in place—and we’re through the winter—… to limit the
extension of any new loans to counterparties.”
128.
Also on June 14, 2022, Silbert reported to DCG’s board of directors regarding
Genesis Capital’s strategy after Three Arrows’ default. In doing so, Silbert presented the option
to “[j]ettison[] the Genesis Capital business” by not supplying Genesis Capital with additional
capital to strengthen its balance sheet.
129.
Nevertheless, on June 15, 2022, two days after Three Arrows’ default, the Genesis
Entities tweeted via their shared Twitter account:
30
30 of 58
PDF Page 32
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
130.
Silbert and DCG both re-tweeted this statement on June 15, 2022.
131.
Indeed, that same day, Silbert wrote to Moro and other Genesis Capital personnel
in a Microsoft Teams chat that “the word on the street is that genesis is the ‘blue chip’ in this
mess…. we need to continue to perpetuate that of course.” In other words, Silbert directed
Genesis Capital personnel to perpetuate the idea that, within the cryptocurrency industry,
Genesis Capital was akin to highly stable “blue chip” companies.
132.
Then, on June 17, 2022, the Genesis Entities’ CEO Moro tweeted the following:
133.
DCG’s COO reviewed and edited these tweets before Moro posted them. In
strategizing the release of the tweets, DCG’s COO directed Moro to send these tweets “from
Moro[’s] [personal Twitter account]” despite directions from Genesis Capital’s compliance
department that these tweets should come from Genesis Capital’s corporate account. The
Genesis Entities reposted Moro’s tweets that same day.
31
31 of 58
PDF Page 33
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
134.
RECEIVED NYSCEF: 10/19/2023
Similarly, in a June 17, 2022 phone call with Gemini’s risk management
personnel, Managing Director No. 1 stated, “Genesis remains solvent and operates [business as
usual] at the moment. With the strong [loan book] and capital support from DCG, Genesis has
no concerns on business operations.” In the same call, Managing Director No. 1 further stated,
“Genesis experienced a certain amount of losses from the liquidation, but will absorb the losses
using its own balance sheet.”
135.
After the call with Gemini, Silbert and DCG’s COO were updated that same day
that Gemini “asked hard [questions] about [Three Arrows],” but that Managing Director No. 1
“fended it off.”
136.
Gemini continued to send Genesis Capital additional investor funds after June 17,
137.
The tweets and statements to Gemini set forth above were false and misleading in
2022.
at least five ways.
138.
First, client funds had been impacted—the Three Arrows losses severely impaired
Genesis Capital’s ability to repay its counterparties, including Earn investors.
139.
Second, due to Three Arrows’ default on June 13, 2022, the Genesis Entities’
balance sheets were not strong, solvent, or capable of absorbing the losses; the Genesis Entities
suffered a loss that exceeded their equity. Indeed, in a June 21, 2022 email, Silbert informed
colleagues at DCG that “the hole in Genesis equity due to the Three Arrows exposure is
something they we [sic] will need to fill by 6/30,” and asked his colleagues to “keep [that]
between us.” Three days later, Silbert further explained to DCG personnel “[w]e just can’t allow
people inside or outside [to] question Genesis’ solvency” due to Silbert’s concern that this could
spark a bank run.
32
32 of 58
PDF Page 34
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
140.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Third, the tweets discussed the sale or hedging of all “liquid” collateral while
concealing that hundreds of millions of dollars’ worth of the loans were secured by illiquid
collateral that could not be sold and was not hedged.
141.
Fourth, Genesis Capital had not “shed the risk and moved on”—as of June 17,
2022, it still held a more than $1 billion receivable relating to Three Arrows as an uncollectible
asset on its balance sheet.
142.
Fifth, Genesis Capital was not operating “business as usual”; the business was
seeking to fill an equity deficiency and at Silbert’s direction on June 14, 2022, limited the
origination of new loans and started shrinking its loan book.
143.
On June 27, 2022, Genesis Capital’s then CEO, Moro, emailed DCG and Genesis
Capital executives, explaining the need to show a “well-capitalized” balance sheet to
counterparties like Gemini on June 30, 2022:
Once the equity problem is solved, the liquidity problem is much easier to solve.
I think we’ll find people to lend us additional [cryptocurrency] with a wellcapitalized 6/30 balance sheet.
And yes, at some point, our losses in [Three Arrows] and potentially Babel will
become public. But if we’re able to show our balance sheet after all of that
happened and it still looks strong, I think that 1) people will care less about the
losses and 2) we’ll be better able to operate from a place of strength going
forward.
But as I told Barry this evening, we have a lot of work to do before we can get
back to full-steam-ahead on lending. Better to think of it in wind-down mode for
the time being, and just manage liquidity as loans roll off. Then we can look to
rebuild.
144.
The next day, in a June 28, 2022 email, Moro wrote to Silbert that he had
discussed with other Genesis Capital representatives how to “best fill the equity hole”,
euphemistically referring to the Genesis Entities’ negative equity value caused by the more than
$1 billion in losses. Moro wrote that “[w]hile liquidity [was] still [Genesis Capital’s] number
33
33 of 58
PDF Page 35
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
one focus, [they] only ha[d] a couple of days until quarter-end.” Thus, he proposed an “overall
plan” of injecting certain assets to “plug the equity hole” and then “work on consistent
messaging to speak to the loss to counterparties when we put out [a] new balance sheet” in an
effort to “[r]estore confidence in the market and keep looking to borrow with term.” Moro
continued:
We wouldn’t necessarily need to touch the [proposed] assets [that DCG would
inject] … for liquidity purposes, it could just be for balance sheet support. And
then with a strengthened balance sheet, we would be able to source additional
unsecured funding to be able to continue to manage our liquidity and withdrawal
obligations.
145.
At this time, the Earn investors were one of Genesis Capital’s largest sources of
unsecured funding.
146.
Silbert responded: “It is certainly our hope and intention to help Genesis address
the equity-hole—hopefully by 6/30. To that end, the Genesis team should be working 24/7 with
DCG and [DCG’s subsidiary, DCG International Investments, Ltd.] teams to figure out all
possible ways to do so along the lines” outlined in Moro’s email.
147.
On June 30, 2022, Moro and Silbert entered into the $1.1 billion Promissory Note.
Under the Promissory Note, DCG agreed to pay Genesis Capital a decade later at only 1%
interest per annum to “replace” the receivables Genesis Capital would have otherwise received
from Genesis Asia Pacific for the Three Arrows loans. Genesis Capital categorized this $1.1
billion as an asset on its balance sheet.
148.
Silbert signed the Promissory Note as CEO of DCG.
149.
Moro signed the Promissory Note as the CEO of Genesis Capital and Genesis
Holdco, and as director of Genesis Asia Pacific.
34
34 of 58
PDF Page 36
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
150.
RECEIVED NYSCEF: 10/19/2023
DCG dictated the terms of the Promissory Note, including the ten-year duration
and 1% interest rate. DCG provided no collateral to secure its obligations under the Promissory
Note. To the contrary, DCG’s repayment of the Promissory Note was subordinate to DCG’s
repayment of an over $350 million credit facility to unrelated third parties. DCG’s pre-existing
$350 million obligation reduced the likelihood that DCG could repay the Promissory Note.
151.
On July 6, 2022, in reference to Three Arrows, Moro tweeted:
152.
DCG’s COO and Head of Communications edited and helped draft these tweets.
Silbert reviewed these tweets before Moro posted them.
153.
The tweets were false, misleading, and omitted material facts. DCG did not
simply “assume” the $1.1 billion, open-term liability related to Three Arrows, which could be
called at any time; it replaced that liability with an illiquid ten-year Promissory Note.
154.
The Promissory Note failed to ensure that Genesis Capital had sufficient capital to
operate its business. The Promissory Note required DCG to provide cash payments in no sooner
than 10 years, whereas the Three Arrows-related liabilities DCG purportedly “assumed” were
callable on demand; this created a mismatch between the Promissory Note and Genesis Capital’s
billions of dollars’ worth of on-demand obligations to Earn users. Genesis Capital’s and DCG’s
35
35 of 58
PDF Page 37
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
internal documents reveal that the Promissory Note’s ten-year duration and 1% interest rate
failed to address the “structural hole” caused by the Three Arrows losses. In an internal
document, Genesis Capital’s Chief Risk Officer acknowledged that the Promissory Note “wreaks
havoc on our balance sheet impacting everything we do.”
155.
Earn investors reviewed Moro’s July 6, 2022 tweets and determined them to be
material. Indeed, some Earn investors emailed Gemini customer service representatives asking
about Genesis Capital’s financial condition in the wake of Three Arrows; in response, Gemini
“encourage[d] [these investors] to take a look at Genesis’s public statements [from July 2022] for
more detailed information on its exposure to” Three Arrows—i.e., Moro’s July 6, 2022 tweets.
Thereafter, these retail investors provided additional assets to Genesis Capital. For example, one
of these retail investors invested more than $1,000 in Gemini Earn on July 20, 2022, shortly after
Gemini directed this investor to Moro’s tweets. This investor lost more than $10,000 in Gemini
Earn when Genesis Capital suspended withdrawals on November 16, 2022.
156.
Likewise, on July 13, 2022, Gemini observed in internal documents that “several
customers [using the social media website Reddit] were reassured by statements from Genesis re
[Three Arrows].”
157.
On July 6, 2022, Genesis Capital’s Head of Communications and Public Relations
sent a document titled “Talking Points to [Three Arrows] Questions” to Moro, as well as DCG’s
COO, DCG’s Head of Communications, and various other senior employees at Genesis Capital
and DCG with instructions to “review and approve.” DCG’s Head of Communications helped
draft these talking points. DCG’s COO also reviewed these talking points on July 6, 2022.
These talking points were to be used by Genesis Capital personnel in conversations with
counterparties, including Gemini.
36
36 of 58
PDF Page 38
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
158.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
These talking points did not provide any information regarding the Promissory
Note, its ten-year duration or 1% interest rate, or the $1.1 billion value of Genesis Capital’s
losses. Instead, the talking points included the misrepresentations that DCG “absorbed” the
losses, that Genesis Capital was “well capitalized,” and that “DCG has assumed certain liabilities
of Genesis related to [Three Arrows] to ensure [Genesis Capital] ha[d] more than adequate
capital to operate and scale our business for the long-term.”
159.
Relying on these talking points, on July 6, 2022, Genesis Entities’ Co-Head of
Trading and Lending, Managing Director No.1, informed Gemini, both over the phone and in
writing, that the Three Arrows “[l]osses [were] predominantly absorbed by and netted against
DCG balance sheet” and that Genesis Capital remained “well-capitalized.” Genesis Capital
misled investors and omitted material facts regarding its financial condition during these
communications, including that Genesis Capital’s balance sheet contained an illiquid $1.1 billion
Promissory Note.
160.
On July 18, 2022, DCG filed a bankruptcy claim against Three Arrows for more
than $1 billion. The same day, DCG’s COO instructed Managing Director No. 1 in writing to
“manage [G]emini and the other largest counterparties” because DCG was concerned that Earn
investors would withdraw their assets. Thus, on July 18, 2022, Managing Director No.1 told
Gemini’s risk personnel conducting due diligence for Earn investors: “There might be some
information relating to DCG’s claim against [Three Arrows] that gets published today or
tomorrow. None of this is new information and all of our loses [sic] have already been absorbed
by DCG/realized on our balance sheet.… All of the losses have already been reflected and are
with DCG.”
37
37 of 58
PDF Page 39
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
161.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Even after July 18, 2022, Gemini transferred hundreds of millions of dollars’
worth of investor assets to Genesis Capital under Earn.
162.
These statements on July 6 and 18, 2022, were false, misleading, and omitted
material information. DCG did not “absorb” the Genesis Entities’ losses. The Promissory Note
concealed those losses on Genesis Capital’s balance sheet but did not replace the lost open-term
assets. On July 7, 2022, Managing Director No. 1 described the issue to DCG’s COO as follows:
the issue is more structural … even though DCG took on liability from [Genesis
Asia Pacific], it still leaves a liquidity hole if we were to conceptually wind the
book down to nothing, the liquidity hole long-term = the $900 m2m loss on
[Three Arrows] + the lack of liquidity on the GBTC collateral which is another
$450mm, so structurally, we have about 1.345B we’d need to get in the form of
long-term debt or equity to ultimately have enough liquid capital to wind
everything down.
163.
In another communication dated July 22, 2022, Managing Director No. 1
explained to a high-level DCG employee that the Three Arrows losses created a “[d]uration
mismatch [at Genesis Capital] because we had [one billion] of open term assets with [Three
Arrows] which no longer exist and thus cannot be used to offset all of our open term liabilities”
including liabilities to the Earn investors. Managing Director No. 1 continued to explain that
there was an additional “asset quality mismatch because $500 [million] of the collateral we
absorbed to offset the [Three Arrows] losses was GBTC which isn’t liquid. So both of these
things on net contribute to the overall net liquidity gap [Genesis Capital] [has] as an
organization.”
164.
Further, the losses were not reflected on Genesis Capital’s balance sheet—they
were reflected on Genesis Asia Pacific’s Q2 2022 income statement, which Genesis Capital
never provided to Gemini.
38
38 of 58
PDF Page 40
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
165.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
On July 21, 2022, Genesis Capital’s CFO corrected some of these misstatements,
writing in an email to a member of Genesis Capital’s sales team: “[w]e should avoid using the
word ‘well-capitalized’” and “DCG didn’t absorb the loss.” The same day, Genesis Capital’s
CFO also messaged Managing Director No. 1 and several members of the lending team: “[w]e
have to stop making reference that we are well capitalized.”
166.
On July 21, 2022, Genesis Capital’s CFO informed DCG and the Genesis
Entities’ Heads of Communications of similar false statements contained in Genesis Capital’s
and DCG’s talking points. Neither DCG nor Genesis Capital corrected any prior misstatements
made to Gemini or the Earn investors.
167.
Genesis Capital’s CFO objected to these false statements to further conceal
Genesis Capital’s financial condition. As Genesis Capital’s CFO explained to Genesis Capital’s
Chief Marketing Officer on July 21, 2022: “I don’t want sales to tell people we have no losses
and then ask me to be on a call to justify that.”
168.
Genesis Capital’s CFO and its finance team avoided joining phone calls with
counterparties to conceal Genesis Capital’s financial condition. Instead, members of Genesis
Capital’s sales and lending teams answered financial questions using only approved talking
points that contained no explanation of the Promissory Note or its terms. In a private message
dated August 30, 2022, Genesis Capital’s CFO confided to a colleague:
We are only comfortable to share what will yield the best outcome for the firm.
[Having the finance team] on the call without anticipated questions is not putting
finance on the spot. It’s putting the firm on the spot. That’s what we have to
convey [to Genesis Capital personnel] [and] why [having the finance team join
counterparty calls] will be putting c suites and [the] firm “at risk.”
169.
Starting in July 2022, and continuing multiple times per week until November 16,
2022, Genesis Capital provided reports to Gemini that listed the value of Genesis Capital’s
39
39 of 58
PDF Page 41
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
“current assets.” A “current asset” is one that can be reduced to cash or cash equivalents within
the course of one year. These reports fraudulently categorized the Promissory Note as a current
asset, even though it was payable ten years later. In response to inquiries from Gemini, on July
28, 2022, Genesis Capital’s CFO helped Genesis Capital’s lending team draft an email to Gemini
which explained that the “current assets” column in this report contained “$1.1bn in receivables
from related parties”—i.e., the Promissory Note. This email to Gemini omitted any reference to
the Promissory Note’s duration or other terms.
C. DCG and Genesis Capital Concealed Information That Would Have Revealed Their
Deceit
170.
Genesis Capital’s CFO and other personnel directed employees not to disclose the
Promissory Note to counterparties such as Gemini. Indeed, many Genesis Capital employees
were not informed of the Promissory Note until months after its signature.
171.
When counterparties requested additional information concerning Genesis
Capital’s financial statements, Genesis Capital continued to conceal and suppress information
that would have revealed the Promissory Note or losses on counterparty defaults. In July 2022,
Genesis Capital’s CFO directed other personnel to tell counterparties that the notes to Genesis
Capital’s balance sheet—which would have explained the Promissory Note and its impact on
Genesis Capital’s balance sheet—were not prepared more frequently than the end of the year.
This was false. Genesis Capital prepared notes for its quarterly balance sheets in prior quarters,
including its unaudited balance sheets for the second and third quarters of 2021 and the first
quarter of 2022.
172.
In a July 2022 Microsoft Teams chat, Genesis Capital’s CFO confessed to her co-
workers that the “real reason” why Genesis Capital would not provide these footnotes to
counterparties was because “[i]n the notes, we are required to disclose a lot of things [w]hich
40
40 of 58
PDF Page 42
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
will highlight what happened” including the “assignment of liab[ilities]”—i.e., the Promissory
Note.
173.
In another Microsoft Teams chat, in September 2022, Genesis Capital’s CFO
explained to coworkers that without the footnotes, counterparties would not know about the
Promissory Note from the balance sheet alone.
174.
After June 30, 2022, Genesis Capital’s CFO, in consultation with DCG, directed
Genesis Capital personnel not to share cash flow and income statements and to withhold Genesis
Asia Pacific’s financial statements from counterparties. These financial statements would have
revealed hundreds of millions of dollars in losses during the second quarter of 2022 and would
have revealed that DCG did not “absorb the loss.”
175.
Cash flow and income statements were important to Gemini’s ability to assess
Genesis Capital’s ability to pay back Earn investors. Thus, Gemini requested Genesis Capital’s
cash flow and income statements for the second quarter of 2022 on multiple occasions after June
30, 2022.
176.
Genesis Capital ignored these requests and Gemini allowed them to do so.
177.
Before executing the Promissory Note, Genesis Capital executives, including
Moro, Genesis Capital’s CFO, and Managing Director No 1, informed DCG officers and
employees what financial statements had previously been shared with counterparties, including
Gemini. Thus, both DCG and Genesis Capital knew that they were deviating from past practices
in providing only a balance sheet to Gemini.
178.
Genesis Capital personnel soon grew concerned that Genesis Capital had provided
false information to counterparties. On September 1, 2022, Genesis Capital’s Director of
Lending reported to its interim CEO: “I’m hearing concerns from front office folks…. They’re
41
41 of 58
PDF Page 43
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
concerned about the accuracy of information we have shared with clients re liquidity and
variability in our equity…. There still is no liquidity infusion from DCG to fill the gap and
instead we have a ‘note’.” Nevertheless, neither DCG nor Genesis Capital corrected the
misstatements that Genesis Capital employees made to counterparties, including the Earn
investors.
179.
On October 28, 2022, Silbert authorized Genesis Capital’s Director of Lending to
disclose the Promissory Note to Gemini—a mere two weeks before Genesis Capital suspended
withdrawals and weeks after Gemini notified Genesis Capital that it was terminating Earn.
D.
DCG Created a Liquidity Crunch at Genesis Capital While Misleading Investors
into Believing the Opposite
180.
From January 2022 through July 2022, DCG and its subsidiary, DCG
International Investments, Ltd. (“DCGI”), collectively borrowed more than $800 million from
Genesis Capital.
181.
On January 24, 2022, Genesis Capital lent DCG $100 million in cash on an
unsecured basis, with a stated maturity date of July 24, 2022. DCG failed to repay that loan on
or before its maturity date. Instead, on July 25, 2022, a DCG executive informed Managing
Director No. 1 that DCG “literally [did not] have the money right now” to repay the loan.
182.
Also on July 25, 2022, the same day, DCG’s treasurer emailed Genesis Capital’s
COO and Managing Director No. 1:
We received guidance from [Silbert] to re-paper the $100mm loan (with July 24th
maturity) from Genesis to DCG by 10 months (until May 2023). Please let us
know what documentation is needed to execute on the new loan. Also, we need
to include language that the loan could be repaid early without any penalty.
183.
Managing Director No. 1 objected, stating: “given the continued pressure from
major lenders such as … Gemini … this duration mismatch will certainly put Genesis in a much
worse spot.” The same day, on July 25, 2022, DCG’s Treasurer responded that DCG “need[ed]
42
42 of 58
PDF Page 44
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
to preserve liquidity to meet our operating cash needs over the next few months.” After
additional objections, the next day, Managing Director No.1 relented stating: “it sounds like we
don’t have much room to push back, so we will do what DCG needs us to do.” DCG also
dictated the interest rate for this loan.
184.
Similarly, on February 23, 2022, Genesis Capital lent DCG another $100 million
in U.S. dollars on an unsecured basis, with a stated maturity date of August 23, 2022. After the
payment became due, at DCG’s insistence, Genesis Capital extended the maturity date of this
loan to May 2023.
185.
On or about June 18, 2022, Genesis Capital lent approximately 18,697 bitcoin
(valued at over $355 million as of June 18, 2022) to affiliate, DCGI, on an open-term basis.
Rather than repaying this loan in bitcoin—the denomination of the loan—DCGI partially repaid
that loan on November 10, 2022, with 25,999,457 shares of GBTC which were worth
approximately $250 million as of November 10, 2022.
186.
This repayment deprived Genesis Capital of liquidity because unlike bitcoin,
Genesis Capital neither borrowed nor lent GBTC, and could not liquidate the GBTC shares due
to affiliate sales restrictions as referenced in paragraph 126 above.
187.
After this repayment, 4,550.45 bitcoin (approximately $80 million as of
November 10, 2022) remained outstanding on Genesis Capital’s loan to DCGI. On November
10, 2022, DCG made Genesis Capital extend the maturity date for the remaining amount to May
11, 2023. These loans all remain unpaid.
V.
Gemini and Genesis Capital Misrepresented the Licensed Status of Genesis Capital
188.
Gemini and Genesis Capital also systematically deceived Earn investors regarding
the regulatory oversight of Genesis Capital. Both parties led Earn investors to believe Genesis
43
43 of 58
PDF Page 45
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
Capital had met its regulatory burdens to receive investments through Earn lawfully. However,
this was not the case.
189.
To invest in Earn, all Earn investors had to agree to the Earn Master Agreement
between the Earn investor, Genesis Capital, and Gemini as “custodian” and “agent” for the Earn
investors. Earn investors accessed this agreement through Gemini’s platform.
190.
The Earn Master Agreement contained several “Representations and Warranties,”
including that “[e]ach Party represent[ed] and warrant[ed] that to its knowledge the transaction
contemplated in th[e] [Earn Master Agreement] [we]re not prohibited by law or other authority
in the jurisdiction of its place of incorporation, place of principal office, or residence and that it
has necessary licenses and registrations to operate in the manner contemplated in this
Agreement.” Further, “[e]ach Party represent[ed] and warrant[ed] that it ha[d] all necessary
governmental and other consents, approvals and licenses to perform its obligations” under Earn.
191.
Genesis Capital’s Chief Legal Officer acknowledged several months before the
launch of Earn that the program “may be viewed as an investment contract under the securities
laws.”
192.
By promoting Earn on its website and social media accounts and entering into
Earn Master Agreements with Earn customers, Genesis Capital offered for sale and sold
securities without registering with the OAG as a securities dealer or a securities salesperson.
193.
Earn is a security under the Martin Act because Earn investors provided their
cryptocurrency assets to Genesis Capital with the expectation of receiving promised yields from
Genesis Capital’s efforts in deploying investors’ pooled assets.
44
44 of 58
PDF Page 46
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
194.
RECEIVED NYSCEF: 10/19/2023
Despite its failure to register with the OAG, Genesis Capital continued to
represent that it was authorized to enter into transactions with Earn investors in New York and
entered into tens of thousands of Earn Master Agreements with New Yorkers.
195.
Months before the launch of the Gemini Earn program, Gemini knew that Genesis
Capital was regulated only by FinCEN and, in fact, categorized Genesis Capital’s lack of
regulation as a “high” risk factor in internal documents.
196.
Neither Genesis Capital nor Gemini corrected the misstatement made in the Earn
Master Agreement.
VI.
Genesis Capital Announces It Cannot Repay More Than 232,000 Earn Investors
197.
On or about November 12, 2022, Genesis Capital privately sought an emergency
loan of between $750 million and $1 billion from a third party, and informed the proposed lender
that it was facing a “liquidity crunch primar[ily] due to certain illiquid assets on its balance sheet
following the events of [Three Arrows]” including (1) the Promissory Note; (2) GBTC; and (3)
unsecured loans to DCG. Genesis Capital did not—or could not—obtain this emergency loan.
198.
On November 16, 2022, Genesis Capital, using the Twitter handle
(@GenesisTrading), announced:
45
45 of 58
PDF Page 47
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
VII.
RECEIVED NYSCEF: 10/19/2023
Earn Investors Lost Over One Billion Dollars Due to Defendants’ Fraud
199.
When Genesis Capital suspended withdrawals on November 16, 2022, it owed
more than $1 billion to more than 232,000 Earn investors, including at least 29,000 New
Yorkers. Many of these investors unsuccessfully attempted to withdraw their investments in the
days around November 16, 2022.
200.
One of the Earn investors was Complainant No. 1, a 73-year-old mother,
grandmother, and resident of the State of New York. She and her husband, who are both retired,
invested their life savings of over $199,000 in Earn because they believed Gemini’s marketing
statements that Gemini was a safe and secure choice. Complainant No. 1 had hoped to use this
money to pay for her grandchild’s education. Outside of her Earn investment, she and her
husband have little savings. Defendants have failed to return any of her assets or the profits she
expected to receive.
201.
Another Earn investor, Complainant No. 2, is a 56-year-old resident of the State
of New York. Complainant No. 2 invested approximately $20,500 in Earn, virtually all his
savings. Complainant No. 2 chose Earn because he researched the product and came to believe,
based on Gemini’s statements, that Earn was more secure than other interest-bearing
cryptocurrency investments.
202.
These complainants are just two of the 232,000 investors who placed their trust in
Earn and are now desperate for relief. To date, Genesis Capital has not lifted this “temporar[y]
suspen[sion]” and neither Genesis Capital nor Gemini have returned the Earn investors’ assets.
Instead, Genesis Capital filed for bankruptcy.
46
46 of 58
PDF Page 48
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
CAUSES OF ACTION
FIRST CAUSE OF ACTION
Martin Act Securities Fraud—Article 23-A of the General Business Law
(Against Defendant Gemini)
203.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
204.
The cryptocurrencies bought, sold, and stored on Gemini’s exchange and used as
part of Earn, including Gemini dollar, bitcoin, and ether, among other cryptocurrencies,
constituted securities or commodities under the Martin Act, and the pooled investment program
that Gemini and Genesis Capital referred to as “Gemini Earn” constituted securities under the
Martin Act.
205.
The acts and practices alleged herein violated Article 23-A of the GBL in that
Gemini employed, or employs, or is about to employ a device, scheme or artifice to defraud or
for obtaining money or property by means of any false pretense, representation or promise in the
issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or
distribution within or from this state of securities or commodities, and constituted fraudulent
practices as defined in GBL § 352 et seq.
206.
The acts and practices alleged herein violated Article 23-A of the GBL in that
Gemini employed, or employs, or is about to employ deception, concealment, suppression, fraud,
false pretense, false promise, or materially false and misleading representations, statements, and
omissions in the issuance, exchange, purchase, sale, promotion, negotiation, advertisement,
investment advice or distribution within or from this state of securities or commodities, and
constituted fraudulent practices as defined in GBL § 352 et seq.
207.
The acts and practices alleged herein violated GBL§ 352-c(1)(a) in that Gemini
used or employed fraud, deception, concealment, suppression, or false pretense, where engaged
47
47 of 58
PDF Page 49
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
in to induce or promote the issuance, distribution, exchange, sale, negotiation, or purchase within
or from this state of securities or commodities, as defined in GBL § 352, regardless of whether
issuance, distribution, exchange, sale, negotiation or purchase resulted, and constituted
fraudulent practices as defined in GBL § 352 et seq.
208.
The acts and practices alleged herein violated GBL§ 352-c(1)(b), in that Gemini
made promises or representations as to the future which were beyond reasonable expectation or
unwarranted by existing circumstances where engaged in to induce or promote the issuance,
distribution, exchange, sale, negotiation, or purchase within or from this state of securities or
commodities, as defined in GBL § 352, regardless of whether issuance, distribution, exchange,
sale, negotiation or purchase resulted, and constituted fraudulent practices as defined in GBL
§ 352 et seq.
209.
The acts and practices alleged herein violated GBL§ 352-c(1)(c) in that Gemini
made representations or statements which were false, and with regard to which Gemini (i) knew
the truth; (ii) with reasonable effort could have known the truth; (iii) made no reasonable effort
to ascertain the truth; or (iv) did not have knowledge concerning the representation or statement
made, where engaged in to induce or promote the issuance, distribution, exchange, sale,
negotiation, or purchase within or from this state of securities or commodities, as defined in GBL
§ 352, regardless of whether issuance, distribution, exchange, sale, negotiation or purchase
resulted, and constituted fraudulent practices as defined in GBL § 352 et seq.
210.
The acts and practices alleged herein violated GBL§ 352-c(6) in that Gemini
intentionally engaged in fraud, deception, concealment, suppression, false pretense or fictitious
or pretended purchase or sale, or made a material false representation or statement with intent to
deceive or defraud, while engaged in inducing or promoting the issuance, distribution, exchange,
48
48 of 58
PDF Page 50
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
sale, negotiation or purchase within or from this state of securities or commodities, as defined in
GBL § 352, and thereby wrongfully obtained property of a value in excess of two hundred fifty
dollars, and constituted fraudulent practices as defined in GBL § 352 et seq.
SECOND CAUSE OF ACTION
Martin Act Securities Fraud—Article 23-A of the General Business Law
(Against Genesis Global Holdco, LLC, Genesis Global Capital, LLC, Genesis Asia Pacific Pte.
Ltd., Digital Currency Group, Inc., Barry Silbert and Soichiro Moro (a.k.a. Michael Moro) (the
“Genesis/DCG Defendants”))
211.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
212.
The acts and practices alleged herein violated Article 23-A of the GBL in that the
Genesis/DCG Defendants employed, or employs, or are about to employ a device, scheme or
artifice to defraud or for obtaining money or property by means of any false pretense,
representation or promise in the issuance, exchange, purchase, sale, promotion, negotiation,
advertisement, investment advice or distribution within or from this state of securities or
commodities, and constituted fraudulent practices as defined in GBL § 352 et seq.
213.
The acts and practices alleged herein violated Article 23-A of the GBL in that the
Genesis/DCG Defendants employed, or employs, or are about to employ deception,
concealment, suppression, fraud, false pretense, false promise, or materially false and misleading
representations, statements, and omissions in the issuance, exchange, purchase, sale, promotion,
negotiation, advertisement, investment advice or distribution within or from this state of
securities or commodities, and constituted fraudulent acts and fraudulent practices as defined in
GBL § 352 et seq.
214.
The acts and practices alleged herein violated GBL § 352-c(1)(a) in that the
Genesis/DCG Defendants used or employed fraud, deception, concealment, suppression, or false
49
49 of 58
PDF Page 51
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
pretense, where engaged in to induce or promote the issuance, distribution, exchange, sale,
negotiation, or purchase within or from this state of securities or commodities, as defined in GBL
§ 352, regardless of whether issuance, distribution, exchange, sale, negotiation or purchase
resulted, and constituted fraudulent practices as defined in GBL § 352 et seq.
215.
The acts and practices alleged herein violated GBL § 352-c(1)(b) in that the
Genesis/DCG Defendants made promises or representations as to the future which were beyond
reasonable expectation or unwarranted by existing circumstances where engaged in to induce or
promote the issuance, distribution, exchange, sale, negotiation, or purchase within or from this
state of securities or commodities, as defined in GBL § 352, regardless of whether issuance,
distribution, exchange, sale, negotiation or purchase resulted, and constituted fraudulent practices
as defined in GBL § 352 et seq.
216.
The acts and practices alleged herein violated GBL § 352-c(1)(c) in that the
Genesis/DCG Defendants made representations or statements which were false, and with regard
to which the Genesis/DCG Defendants: (i) knew the truth; (ii) with reasonable effort could have
known the truth; (iii) made no reasonable effort to ascertain the truth; or (iv) did not have
knowledge concerning the representation or statement made, where engaged in to induce or
promote the issuance, distribution, exchange, sale, negotiation, or purchase within or from this
state of securities or commodities, as defined in GBL § 352, regardless of whether issuance,
distribution, exchange, sale, negotiation or purchase resulted, and constituted fraudulent practices
as defined in GBL § 352 et seq.
217.
The acts and practices alleged herein violated GBL § 352-c(6) in that the
Genesis/DCG Defendants intentionally engaged in fraud, deception, concealment, suppression,
false pretense or fictitious or pretended purchase or sale, or made a material false representation
50
50 of 58
PDF Page 52
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
or statement with intent to deceive or defraud, while engaged in inducing or promoting the
issuance, distribution, exchange, sale, negotiation or purchase within or from this state of
securities or commodities, as defined in GBL § 352, and thereby wrongfully obtains property of
a value in excess of two hundred fifty dollars, and constituted fraudulent practices as defined in
GBL § 352 et seq.
THIRD CAUSE OF ACTION
Martin Act Failure to Register—General Business Law § 359-e and Regulations Promulgated
thereunder, 13 NYCRR § 10
(Against Defendant Genesis Capital)
218.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
219.
The acts and practices alleged herein violated GBL § 359-e and regulations
promulgated thereunder, including provision of Official Compilation of Codes, Rules, and
Regulations of the State of New York Title 13, Chapter II, Subchapter A, Part 10, insofar as
Genesis Capital’s acts and practices constituted the sale or offer for sale to or purchase or offer to
purchase from the public within or from New York, any securities issued or to be issued without
filing a registration statement.
220.
Genesis Capital has not registered with OAG as a securities broker or dealer and
is not exempt from such registration requirement.
221.
Each security transaction offered or effected by the referenced Defendant within
New York constituted fraudulent practices as defined in GBL § 352 et seq.
222.
The referenced Defendant have repeatedly and persistently violated GBL § 359-
e(3) and the Official Compilation of Codes, Rules, and Regulations of the State of New York
Title 13, Chapter II, Subchapter A, Part 10.
51
51 of 58
PDF Page 53
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
FOURTH CAUSE OF ACTION
Repeated and Persistent Fraud—Executive Law § 63(12)
(Against Defendant Gemini)
223.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
224.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that Gemini engaged in repeated fraudulent acts or otherwise demonstrated
persistent fraud in the carrying on, conducting or transaction of business.
FIFTH CAUSE OF ACTION
Repeated and Persistent Fraud—Executive Law § 63(12)
(Against the Genesis/DCG Defendants)
225.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
226.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent acts or
otherwise demonstrated persistent fraud in the carrying on, conducting or transaction of business.
SIXTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Martin Act
(Against Defendant Gemini)
227.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
228.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that Gemini engaged in repeated fraudulent or illegal acts in violation of GBL
§§ 352, 352-c, and 353.
52
52 of 58
PDF Page 54
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
229.
RECEIVED NYSCEF: 10/19/2023
Accordingly, Gemini engaged in repeated fraudulent or illegal acts or otherwise
demonstrated persistent fraud or illegality in the carrying on, conducting or transaction of
business.
SEVENTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Martin Act
(Against the Genesis/DCG Defendants)
230.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
231.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
in violation of GBL §§ 352, 352-c, and 353.
232.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
EIGHTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Scheme to Defraud under New York Penal Law
(Against Genesis/DCG Defendants)
233.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
234.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
by violating New York Penal Law § 190.65(1)(b), Scheme to Defraud in the First Degree.
235.
Pursuant to NY Penal Law § 190.65(1)(b), a person commits a scheme to defraud
in the first degree when he or she engages in a scheme constituting a systematic ongoing course
53
53 of 58
PDF Page 55
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
RECEIVED NYSCEF: 10/19/2023
of conduct with intent to defraud more than one person or to obtain property from more than one
person by false or fraudulent pretenses, representations or promises, and so obtains property with
a value in excess of one thousand dollars from one or more such persons.
236.
The Genesis/DCG Defendants, through their conduct described above, have
engaged in a scheme constituting a systematic ongoing course of conduct with intent to defraud
more than one person or to obtain property from more than one person by false or fraudulent
pretenses, representations or promises, and so obtained property with a value in excess of one
thousand dollars from one or more such persons.
237.
With respect to the Genesis/DCG Defendants that are not natural persons, they are
liable for the additional reasons that the conduct constituting the offense is engaged in,
authorized, solicited, requested, commanded, or recklessly tolerated by the board of directors or
by a high managerial agent acting within the scope of his employment and in behalf of the
corporation.
238.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
NINTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Illegality: Conspiracy in the Fifth Degree under New York Penal Law
(Against the Genesis/DCG Defendants)
239.
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
240.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis/DCG Defendants engaged in repeated fraudulent or illegal acts
by violating New York Penal Law § 105.05(1), Conspiracy in the Fifth Degree.
54
54 of 58
PDF Page 56
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
241.
RECEIVED NYSCEF: 10/19/2023
Pursuant to NY Penal Law § 105.05(1), a person commits conspiracy in the fifth
degree when, with intent that conduct constituting a felony be performed, he agrees with one or
more persons to engage in or cause the performance of such conduct.
242.
At least one of the Genesis/DCG Defendant co-conspirators engaged in an overt
act, such as preparing the Promissory Note, financial statements, and risk reports, drafting
talking points and communication related messaging, and/or corresponding with Gemini and the
public concerning Genesis Capital’s financial condition, in furtherance of the agreement.
243.
Overt acts in furtherance of the conspiracy occurred as late as 2022.
244.
With respect to the Genesis/DCG Defendants that are not natural persons, they are
liable for the additional reasons that the conduct constituting the offense is: i) engaged in,
authorized, solicited, requested, commanded, or recklessly tolerated by the board of directors or
by a high managerial agent acting within the scope of his employment and in behalf of the
corporation, or ii) is engaged in by an agent of the corporation while acting within the scope of
his employment and on behalf of the corporation, and the offense is a misdemeanor or a
violation.
245.
Thus, the Genesis/DCG Defendant engaged in a conspiracy to engage in a scheme
to defraud, and violated the Martin Act, as referenced above.
246.
Accordingly, the Genesis/DCG Defendants engaged in repeated fraudulent or
illegal acts or otherwise demonstrated persistent fraud or illegality in the carrying on, conducting
or transaction of business.
TENTH CAUSE OF ACTION
Repeated and Persistent Illegality—Executive Law § 63(12)
Martin Act – Failure to Register
(Against Defendant Genesis Capital)
55
55 of 58
PDF Page 57
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
247.
RECEIVED NYSCEF: 10/19/2023
The Attorney General repeats and re-alleges the paragraphs above as if fully
stated herein.
248.
The acts and practices alleged herein constitute conduct proscribed by Executive
Law § 63(12), in that the Genesis Capital violated GBL§ 359-e and regulations promulgated
thereunder, including provision of Official Compilation of Codes, Rules, and Regulations of the
State of New York Title 13, Chapter II, Subchapter A, Part 10, insofar as Genesis Capital’s acts
and practices constituted the sale or offer for sale to or purchase or offer to purchase from the
public within or from New York, any securities issued or to be issued without filing a
registration statement.
249.
Genesis Capital has not registered with OAG as a securities broker or dealer and
is not exempt from such registration requirement.
250.
Each security transaction offered or effected by the referenced Defendant within
New York constituted fraudulent practices as defined in GBL § 352 et seq.
251.
Accordingly, Genesis Capital engaged in repeated fraudulent or illegal acts or
otherwise demonstrated persistent fraud or illegality in the carrying on, conducting or transaction
of business.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
Permanently enjoining Defendants from violating the Martin Act, Article 23-A of
the General Business Law, and Executive Law § 63(12) and from engaging in the fraudulent,
deceptive and illegal acts alleged herein;
B.
Permanently enjoining Defendants from engaging in any business related to the
issuance, offer, distribution, exchange, promotion, advertisement, negotiation, purchase,
investment advice, or sale of securities or commodities within or from this state;
56
56 of 58
PDF Page 58
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
C.
INDEX NO. 452784/2023
RECEIVED NYSCEF: 10/19/2023
Directing Defendants to pay damages caused, directly or indirectly, by the
fraudulent and deceptive acts and repeated fraudulent acts and persistent illegality complained of
herein plus applicable pre-judgment interest;
D.
Directing Defendants to disgorge all amounts obtained in connection with or as a
result of fraudulent and deceptive acts and repeated fraudulent acts and persistent illegality
complained of herein;
E.
Directing Defendants to make restitution of all funds obtained by Defendants
from investors in connection with the fraudulent and deceptive acts fraudulent and deceptive acts
and repeated fraudulent acts and persistent illegality complained of herein;
F.
Directing Defendants to each pay the sum of $2,000 to Plaintiff pursuant to GBL
§ 353(1);
G.
Directing such other equitable relief as may be necessary to redress Defendants’
violations of New York Law; and
[Continued on next page]
57
57 of 58
PDF Page 59
INDEX NO. 452784/2023
FILED: NEW YORK COUNTY CLERK 10/19/2023 12:54 AM
NYSCEF DOC. NO. 2
H.
RECEIVED NYSCEF: 10/19/2023
Granting such other and further relief as may be just and proper.
Dated: New York, New York
October 19, 2023
LETITIA JAMES
Attorney General of the State of New York
By: _________________________
Geoffrey Andreu
John Ruth
Assistant Attorneys General
Gabriel Tapalaga
Senior Enforcement Counsel
Kenneth Haim
Deputy Chief, Investor Protection Burau
Shamiso Maswoswe
Chief, Investor Protection Bureau
28 Liberty Street
New York, New York 10005
Tel.: (212) 416-8769
Counsel for the People of the State of New York
58
58 of 58