Judge denies most of DCG’s motion to dismiss NYAG’s civil securities fraud suit.

A recent ruling by a New York judge has allowed most of the civil securities fraud lawsuit filed by New York Attorney General Letitia James against Digital Currency Group (DCG) and two of its executives to proceed to trial. The lawsuit, which was initiated in 2023, accuses DCG, CEO Barry Silbert, Genesis Global Capital, and former CEO Michael Moro of collaborating to conceal a significant $1 billion deficit in Genesis’ financial records following the collapse of the Singapore-based crypto hedge fund Three Arrows Capital (3AC) in 2022.

According to James, DCG and Genesis misrepresented on social media that DCG had absorbed Genesis’ losses from the 3AC collapse. However, it was revealed that they merely covered the deficit with a promissory note, promising to pay Genesis $1.1 billion over a decade at a 1% interest rate. Despite DCG’s claims of the note’s legitimacy, James alleged that no payments were ever made under the agreement.

Although Gemini and Genesis settled with the Attorney General’s Office, DCG, Silbert, and Moro challenged the accusations vigorously. In their defense, they filed motions to dismiss the lawsuit, claiming that they were not engaged in selling securities and therefore should not be held accountable under New York State securities laws. However, the judge overseeing the case rejected this argument, stating that the OAG adequately asserted that the Gemini Earn program, a defunct lending product central to the case, constituted a security.

While the lawsuit was permitted to move forward, the judge dismissed two of James’ claims against DCG, Moro, and Silbert, citing redundancy. Specifically, the claims related to an alleged scheme to defraud and conspiracy were deemed duplicative. Despite the ruling, DCG expressed its determination to continue challenging the lawsuit, denouncing the allegations as baseless and unsubstantiated. The company emphasized its commitment to supporting the digital assets industry amidst ongoing legal battles.

Overall, the recent court ruling signifies a pivotal development in the ongoing legal dispute between the New York Attorney General and DCG, shedding light on the complexities of the case and the challenges faced by both parties in seeking a resolution. The outcome of the trial will undoubtedly have significant implications for the cryptocurrency industry and regulatory landscape, underscoring the importance of regulatory compliance and accountability in the evolving digital assets sector.