New York Judge Allows Majority of DCG Securities Fraud Suit to Proceed

A New York judge has ruled that the majority of the civil securities fraud suit filed by New York Attorney General Letitia James against crypto venture firm Digital Currency Group (DCG) and two of its executives can proceed to trial. The suit, filed in 2023, alleges that DCG, its CEO Barry Silbert, DCG’s now-bankrupt lending arm Genesis Global Capital, its former CEO Michael Moro, and crypto exchange Gemini worked together to conceal a $1 billion deficit in Genesis’ balance sheet. This deficit was caused by the collapse of Singapore-based crypto hedge fund Three Arrows Capital (3AC) in 2022.

According to the Attorney General, DCG and Genesis made false assurances on social media that DCG had absorbed Genesis’ losses from 3AC’s collapse. In reality, they had only covered the deficit with a promissory note, which promised to pay Genesis $1.1 billion over 10 years at a 1% interest rate. DCG has maintained that the promissory note was legitimate, but the suit claims that DCG has never made a single payment under the note.

Gemini and Genesis have both settled with the Office of the Attorney General (OAG), but DCG, Silbert, and Moro have contested the suit. Last spring, they filed motions to dismiss the case, arguing that the OAG had failed to state a claim and that they were not selling securities, thus should not be sued under New York State securities laws. The judge, however, disagreed and ruled that the OAG had adequately alleged that the Gemini Earn program, a now-defunct Gemini lending product, was a security.

The judge did dismiss two of James’ claims against DCG, Moro, and Silbert. These claims were under New York’s Executive Law, alleging a scheme to defraud in the first degree and a conspiracy in the fifth degree. The judge ruled that these claims were duplicative. Despite the ruling, DCG has stated that it will continue to fight the lawsuit, maintaining that the allegations against it are baseless.

DCG’s spokesperson emphasized that the allegations are a "thin web of innuendo, mischaracterizations, and unsupported conclusions." They expressed encouragement over the judge’s dismissal of the most "outrageous claims" based on alleged violations of criminal fraud and conspiracy statutes. DCG remains focused on its mission in support of the digital assets industry.