Court Denies Majority of DCG’s Request to Dismiss NYAG’s Civil Securities Fraud Case
A New York judge ruled on Friday that the majority of New York Attorney General Letitia James’ civil securities fraud suit against the crypto venture firm Digital Currency Group (DCG) and two of its executives can proceed to trial. In 2023, James filed suit against DCG and its CEO Barry Silbert, DCG’s now-bankrupt lending arm Genesis Global Capital and its former CEO Michael Moro, and the crypto exchange Gemini. The allegations state that they collaborated to conceal a significant $1 billion deficit in Genesis’ balance sheet, which was exacerbated by the collapse of the Singapore-based crypto hedge fund Three Arrows Capital (3AC) in 2022. James contends that DCG and Genesis made “false assurances” on social media, suggesting that DCG absorbed Genesis’ losses from 3AC’s failure, when in reality they had only masked the issue with a promissory note, agreeing to pay Genesis $1.1 billion over 10 years at a 1% interest rate. While DCG insists that the promissory note is valid, James’ lawsuit claims that DCG has “never made a single payment under the Note.”
Although Gemini and Genesis have settled with the Office of the Attorney General (OAG), DCG, Silbert, and Moro have strongly opposed the charges. Last spring, these parties filed motions to dismiss the suit, arguing that the OAG had not sufficiently substantiated its claims—essentially asserting that they were not selling securities and should therefore not be subject to New York State securities laws.
However, the presiding judge disagreed in her ruling, stating that the OAG has, at least at this stage of the case, sufficiently claimed that the Gemini Earn program—the now-defunct Gemini lending product that failed in November 2022 and is central to James’ case—constitutes a security. The judge did, however, agree to dismiss two of James’ claims against DCG, Moro, and Silbert—one alleging they engaged in a scheme to defraud in the first degree, and another claiming they participated in a conspiracy in the fifth degree—finding these claims to be duplicative.
Even though the judge determined that the case can move forward, DCG is committed to continuing its defense. “As we have stated from the beginning, the allegations against DCG are a thin web of innuendo, mischaracterizations, and unsupported conclusions,” a DCG spokesperson shared with Hotnchill. “We’re encouraged by the judge’s dismissal of the most serious claims made by the New York Attorney General concerning alleged violations of criminal fraud and conspiracy statutes. We will persist in fighting this unfounded lawsuit as we maintain our focus on supporting the digital assets industry.”
