A New York judge ruled on Friday that the majority of New York Attorney General Letitia James’ civil securities fraud case against cryptocurrency venture firm Digital Currency Group (DCG) and two of its executives can go to trial.
In 2023, James sued. James sued DCG and its CEO Barry Silbert, DCG’s now-bankrupt lending arm Genesis Global Capital and its former CEO Michael Moro, and cryptocurrency exchange Gemini, alleging that they conspired to conceal a $1 billion hole in Genesis’ balance sheet caused by the collapse of Singapore-based crypto hedge fund Three Arrows Capital (3AC) in 2022.
According to James, DCG and Genesis made “false assurances” on social media that DCG had absorbed Genesis’ losses from 3AC’s implosion when, in fact, they had simply papered over the hole with a promissory note pledging to pay Genesis $1.1 billion over 10 years at a 1% interest rate. While DCG has insisted that the promissory note was valid, James’ lawsuit claims that DCG has “never made a single payment under the Note.”
Gemini and Genesis both settled with the OAG, but DCG, Silbert, and Moro fought them tooth and nail. Last spring, DCG and both executives moved to dismiss the suit, claiming that the Office of the Attorney General (OAG) had failed to state a claim — essentially arguing that they were not selling securities and thus should not be sued under New York State securities laws.
However, the judge presiding over the case disagreed in her Friday ruling, writing that the OAG had, at least at this stage of the case, adequately alleged that the Gemini Earn program — the now-defunct Gemini lending product that went bankrupt in November 2022 and is at the heart of James’ case — was a security.
Crane dismissed two of James’ claims against DCG, Moro, and Silbert as duplicative under New York’s Executive Law: one for scheme to defraud in the first degree and another for conspiracy in the fifth degree.
Although Crane ruled that the case could proceed, DCG stated that it is not done fighting.
“As we have stated from the beginning, the allegations against DCG are a thin web of innuendo, mischaracterizations, and unsupported conclusions,” a DCG spokesperson told CoinDesk.
“We are encouraged by the judge’s decision to dismiss the New York Attorney General’s most outrageous claims based on alleged violations of criminal fraud and conspiracy statutes. We will continue to fight this baseless lawsuit while remaining focused on our mission to support the digital asset industry.”
