New York Attorney General Letitia James has filed a lawsuit naming cryptocurrency exchange Gemini, its lending arm Genesis Global Capital, and parent company Digital Currency Group (DCG) along with its executives as defendants. The lawsuit alleges that these companies defrauded over 230,000 investors through the Gemini Earn program, resulting in losses exceeding $1 billion. At the heart of the case are allegations that Gemini promoted its Earn program as a low-risk yield product despite knowing that Genesis's counterparty risks were worsening and overly concentrated in Alameda Research.
Gemini Lawsuit Highlights Counterparty Risk in Earn Program
The Gemini Earn program allowed retail users to deposit crypto assets with Gemini in exchange for yield. Gemini then lent these assets to Genesis, which engaged in various trading and lending strategies. However, the lawsuit claims that Gemini continued to market the product as low-risk even when its internal due diligence revealed significant financial risks at Genesis.
Specifically, the state government alleges that Gemini was aware of concentrated counterparty risk with Genesis's FTX-affiliated trading firm, Alameda Research. Following the collapse of Alameda and FTX in late 2022, Genesis froze withdrawals, leaving Earn depositors unable to access their funds. At least 29,000 of the affected investors are New York residents.
It is important to note that these allegations have not yet been proven. Both sides have publicly denied the claims. Gemini stated that they believe they are victims of fraud, not perpetrators, and look forward to defending themselves in court, calling it "pointless to accuse a victim of being deceived and defrauded." Barry Silbert, meanwhile, called the allegations "baseless" and stated he would vigorously defend himself.
Importance of Disclosure for Centralized Finance (CeFi) Yield Products for Decentralized Finance (DeFi News) Users
The Gemini Earn case highlights a structural risk in centralized finance yield products that DeFi News-native users have long criticized: opaque counterparty risk. In DeFi News lending protocols like Aave or Compound, collateralization ratios and liquidation thresholds are transparent and enforced by smart contracts. In contrast, CeFi yield programs rely on users trusting that intermediaries are responsibly managing risk.
This lawsuit also carries significant reputational implications. Gemini is one of the most regulated exchanges in the United States, holding a BitLicense in New York. If even a licensed, compliance-focused exchange is found to have misled depositors, it could broadly shake confidence in CeFi yield models.
Broader Implications for Exchange Transparency and Protocol Trust
This enforcement action aligns with a broader pattern of regulators cracking down on disclosure failures by crypto intermediaries. The New York Attorney General's use of the Martin Act—a broad anti-fraud statute that does not require proof of criminal intent—provides a powerful legal weapon for the state. The lawsuit seeks over $1.1 billion in restitution, tied to losses that Genesis and DCG allegedly concealed from investors.
Looking ahead, the outcome of this case could influence how regulators assess crypto products that offer interest.