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New York Attorney General Letitia James has taken legal action against renowned crypto entities: the Gemini exchange, the crypto loan provider Genesis, and the crypto investment group Digital Currency Group (DCG). Additionally, former Genesis CEO Michael Moro and DCG CEO Barry Silbert are pinpointed for their supposed roles in deceptive practices which allegedly defrauded customers, as detailed by Axios.

The lawsuit delves into Gemini’s financial dealings, stating that it channeled funds to Genesis through its Earn program. These funds were then loaned to parties like Three Arrows Capital and Alameda. When a series of industry bankruptcies led to Genesis defaults, the company faced an astounding $1 billion shortfall.

DCG is charged with concealing these losses under the guise of absorbing them. In truth, they only provided a promissory note to Genesis, their subsidiary.

Moreover, Gemini has been accused of misleading about the full collateral backing of Genesis loans. Data presented by the Attorney General’s office reveals that from December 2020 to September 2022, these loans were backed by merely 60-90% collateral, in contradiction to Gemini’s assertions.

By February 2022, Gemini’s risk management foresaw a potential default rate of 50-60% if the market took a downturn. They even paralleled Genesis’ financial standing to firms rated CCC in creditworthiness, hinting at a considerable credit peril.

The lawsuit reveals Genesis made concerted efforts to hide the losses tied to the promissory note. This document signifies a commitment between a lender and borrower for repayment plus interest. The promissory note remained concealed until Silbert permitted its disclosure to Gemini on October 28, 2022, a mere fortnight before Genesis put a halt on withdrawals.

This action by the Attorney General echoes earlier allegations by Gemini’s co-founder, Cameron Winklevoss, who claimed that Genesis provided misleading information about its fiscal stability.

Furthermore, the lawsuit intimates that between January and July 2022, DCG took loans exceeding $800 million from Genesis.

The legal complaint strives to bar the implicated parties from securities and commodities sales within New York. It also seeks the imposition of penalties, damages, and the surrender of any ill-gotten gains from their purported deceit.

As of now, Digital Currency Group has tentatively agreed to a settlement with Genesis creditors. This deal proposes to compensate 70-90% in USD to unsecured creditors. Based on recent court documents, the accord assures a recovery ranging from 65% to 90% depending on the cryptocurrency denomination.