Digital Currency Group Files for Dismissal of New York Attorney General’s Lawsuit

• Digital Currency Group and its CEO Barry Silbert have filed motions to dismiss a lawsuit brought by New York Attorney General Letitia James.
• The lawsuit alleges investors tied to the now-defunct Gemini Earn product and those with direct investments with DCG unit Genesis have been defrauded out of $3 billion.
• Rather than remove money from Genesis following the collapse of Three Arrows Capital and crypto exchange FTX, DCG contributed some $1.4 billion (at today's prices) into the stricken business, the DCG filing claims.

Digital Currency Group (DCG), the owner of bankrupt cryptocurrency lending operation Genesis Global Capital, has filed a motion to dismiss New York Attorney General Letitia James’ lawsuit against the firms.

DCG founder and CEO Barry Silbert also filed a motion on Wednesday to dismiss the Attorney General’s accusation that he concealed losses at the firms and therefore cheated customers and investors.

The New York lawsuit, filed in October of last year and subsequently expanded last month, alleges investors tied to the now-defunct Gemini Earn product and those with direct investments with DCG unit Genesis had been defrauded out of $3 billion, due to DCG and others hiding losses incurred during the collapse of crypto firms such as Three Arrows Capital (3AC) and FTX.

The crypto industry’s tangled mass of high-yield lending programs has mostly vanished, with the biggest and ugliest probably the partnership of Genesis and crypto exchange Gemini – owned by Tyler and Cameron Winklevoss – which has itself given rise to an acrimonious legal battle.

"Today, DCG and Barry Silbert filed motions to dismiss the meritless civil complaint filed by the New York Attorney General against Gemini, Genesis, and DCG. As we have stated from the beginning, the allegations are a thin web of baseless innuendo, blatant mischaracterizations, and unsupported conclusory statements," DCG said in a statement.

The NYAG lawsuit alleges the companies knew loans between them were under-secured and highly concentrated with FTX’s sister company, Alameda Research, and that DCG and Silbert concealed a gaping hole in the finances by way of a promissory note between the parent company and Genesis.

DCG's dismissal filing points to misinformation and speculation in the market, which held that following the collapse of 3AC in 2022, DCG took money out of Genesis. The opposite was true, DCG claims: In addition to the promissory note, which DCG says is a fully vetted, fully binding document the firm is committed to, some $1.4 billion of cash and other assets, at today's prices, were contributed to Genesis after 3AC went down, according to Wednesday's filing.

"DCG transferred hundreds of millions of dollars and assets into Genesis at a time it had no obligation to do so," a DCG spokeswoman said via email. "In fact, at today's prices, this equates to ~$1.4 billion in cash and coins. This is in addition to the $1.1 billion promissory note that continues to be misunderstood. Together, DCG's contributions equate to ~30% of the current value of the Genesis estate."

DCG also contests allegations that the firm took an 18,000 bitcoin loan from Genesis after 3AC collapsed in June of 2022. This in fact was an administrative repapering to consolidate prior loan agreements, DCG claims, and no new money left Genesis for DCG.

"The allegations are inaccurate throughout the complaint and they are often outright false," the DCG spokeswoman said.

Adding a further layer of complication, Genesis last month proposed a settlement deal with the New York attorney general's office, which parent company DCG later objected to, calling the proposal “a back-door attempt to circumvent U.S. bankruptcy law.”

Correction (14:00 UTC, March 6, 2024): Updated to show combined values of DCG contributions equate to 30% of current value of Genesis estate.