A judge in New York decided on Friday that most of the civil securities fraud lawsuit brought by Attorney General Letitia James against the cryptocurrency investment firm Digital Currency Group (DCG) and two of its executives can advance to trial.
In 2023, James initiated legal action against DCG and its CEO Barry Silbert, the now-defunct lending division Genesis Global Capital and its former CEO Michael Moro, as well as the crypto exchange Gemini. She accused them of colluding to conceal a significant $1 billion deficit in Genesis’ financial statements, which arose from the collapse of Singapore’s Three Arrows Capital (3AC) in 2022.
According to James, DCG and Genesis provided misleading statements on social media, claiming that DCG had absorbed Genesis’ losses from the 3AC fallout when, in reality, they had merely masked the deficit with a promissory note proposing to pay Genesis $1.1 billion over a decade at a 1% interest rate. While DCG contends that the note was valid, James’ lawsuit asserts that DCG has “never made a single payment under the Note.”
While Gemini and Genesis reached settlements with the Office of the Attorney General, DCG, Silbert, and Moro have strenuously contested the allegations. Last spring, they submitted motions to dismiss the case, claiming that the Office of the Attorney General (OAG) had failed to substantiate its claims — essentially asserting that they were not engaging in the sale of securities and therefore shouldn’t be subject to New York State securities laws.
However, the presiding judge ruled against them in her decision on Friday, stating that the OAG had, at least at this stage, sufficiently demonstrated that the Gemini Earn program—the now-defunct lending service that failed in November 2022 and is central to James’ lawsuit—constituted a security.
Though some allegations against DCG, Moro, and Silbert were dismissed, the judge ruled that those claims, which included one about first-degree fraud under New York’s Executive Law and another regarding a fifth-degree conspiracy, were redundant.
Following the ruling, DCG expressed that it would not back down without a fight.
“From the outset, we have maintained that the accusations against DCG are woven from a flimsy fabric of innuendo, misinterpretations, and baseless conclusions,” a DCG representative stated. “We appreciate the judge’s decision to dismiss the more extreme claims made by the New York Attorney General regarding supposed violations of criminal fraud and conspiracy laws. We will continue to vigorously defend against this unfounded lawsuit while remaining dedicated to our mission in the digital assets space.”