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Digital Currency Group (DCG) and its founder Barry Silbert have been sued following the bankruptcy of their subsidiary Genesis last week.
Silver Golub & Teitell LLP (SGT) filed a securities class action lawsuit in the Connecticut District Court where DCG is headquartered.
The complaint seeks to hold DCG and Silbert accountable in their capacity as “Controlling Persons,” the law firm said. It accuses:
“Genesis Global Capital is engaged in offering unregistered securities that violate Section 5 of the Securities Act by entering into lending agreements with SGT clients and members of alleged classes that fit the definition of securities without qualifying for exemption from registration under federal securities laws.”
Additionally, they were prosecuted for outright fraud, echoing the complaints of the Winklevoss twins alleging misrepresentation.
“The complaint also accuses Genesis Global of engaging in securities fraud through a scheme to defraud current and potential digital asset lenders by making false and misleading statements that knowingly describe the financial condition of Genesis Global Capital in violation of Section 10(b) of the Exchange Act. and SEC Regulation 10b-5 promulgated under it.
The fraudulent scheme was carried out, according to the Complaint, to encourage potential digital asset lenders to lend digital assets to Genesis Global Capital and to prevent existing lenders from redeeming their digital assets.”
Genesis processed billions in crypto-backed loans to numerous clients, including institutional clients as well as the now bankrupt hedge fund Three Arrow Capital (3AC).
They lost about $1.1 billion to 3AC, but DCG and Barry Silbert claim they took over this loss in a $1.1 billion promissory note, allowing Genesis to continue operating for another five months.
FTX’s bankruptcy led to a further loss of $150 million in Genesis, an amount that proved too much with operations suspended in November.
After that, instead of actually covering 3AC’s losses, it turned out that these notes matured within a decade and Genesis had a $2 billion hole, leading to their bankruptcy.
Nearly $1 billion of it is owed to Gemini Earn which is operated by the Winklevoss twins. They threatened to sue once bankruptcy was declared, with it unclear whether they are now part of this class action.
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