New York Attorney General Letitia James has filed an amended complaint in her ongoing civil lawsuit against Digital Currency Group, the crypto empire founded by Barry Silbert.
After initially alleging that DCG, whose portfolio companies include crypto lender Genesis and asset manager Grayscale, defrauded investors out of more than $1 billion, Friday’s complaint ups that figure to $3 billion.
“The fraud and deceit were so expansive that many additional people have come forward to report similar harm,” James said in a statement shared with Fortune. “This illegal cryptocurrency scheme, and the horrific financial losses that real people have suffered, are yet another reminder of why stronger cryptocurrency regulations are needed to protect all investors.”
An empire in decline
Founded in 2015, Digital Currency Group helped build the foundation for the crypto bull markets of 2017 and 2021 through its diverse array of investments and portfolio companies. Genesis served as a crucial source of capital for other crypto projects, including Sam Bankman-Fried’s trading firm Alameda Research and the hedge fund Three Arrows Capital, while Grayscale offered Bitcoin to a wider demographic of investors through its trust product, GBTC. Until recently, Digital Currency Group also owned CoinDesk, the leading crypto trade publication.
The collapse of crypto firms like Terraform Labs, FTX, and Three Arrows Capital in 2022 led to a crisis for Digital Currency Group, with Genesis unable to recoup its loans to failed companies. As a result, Genesis filed for bankruptcy in January 2023, sinking another of DCG’s key projects—a partnership with Gemini, the crypto exchange founded by the Winklevoss brothers.
Gemini had launched a product called Earn, which promised investors interest rates as high as 8% in exchange for depositing their cryptocurrencies with the platform. In exchange, Gemini lent the crypto to Genesis, which in turn lent the assets to firms like Alameda and Three Arrows Capital. The program also collapsed as a result of systemic failure in the crypto industry.
The New York Office of the Attorney General was one of several regulators to bring charges against Digital Currency Group and Gemini, with the Securities and Exchange Commission filing its own lawsuit in January 2023. In her initial complaint from October, James named not only Digital Currency Group, Gemini, and Genesis, but also Silbert and former Genesis CEO Soichiro Moro, alleging that they had withheld key financial information from investors and tried to conceal losses with questionable accounting.
‘Nothing new here’
James’s complaint against Digital Currency Group and its associated entities has become the marquee action for the office, which has taken strong enforcement actions against other actors in the crypto industry, including the stablecoin issuer Tether. James is also trying to advance her own crypto regulation—a crusade that’s drawn controversy owing to its perceived overlap with the other New York financial regulator, the Department of Financial Services.
On Thursday, James’s office reached a settlement with Genesis, ensuring that any assets will go to former Earn customers and Genesis creditors, and ensuring that Genesis will no longer do business in New York.
Friday’s complaint indicates that James intends to move forward with her lawsuit against the other named parties, however. The updated filing says additional investors came forward after the initial lawsuit, with the estimated figure of lost funds nearly tripling. James is seeking restitution of the full $3 billion figure.
The sole bright spot in Silbert’s once-prospering empire might be Grayscale, the asset manager that managed to convert GBTC into an exchange-traded fund in January after winning a lawsuit against the SEC. Other sources of revenue include its mining company, Foundry, which generated $49 million in the third quarter of 2023.
A spokesperson for Digital Currency Group said in a statement to Fortune: “There is nothing new here. This is the same baseless civil complaint recirculated to generate another round of press headlines. We will fight the claims aggressively, and we will win. DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated.”
