Prominent cryptocurrency companies are identified in a $1 billion fraud lawsuit.

United States prosecutors have leveled accusations against three prominent cryptocurrency firms, alleging that they defrauded investors of over $1 billion in a legal action spearheaded by New York Attorney General Letitia James. The companies involved are Gemini, a cryptocurrency exchange, Genesis, a crypto lender, and its parent company, Digital Currency Group (DCG).

According to the lawsuit, Gemini deceived its customers about the risks associated with an investment account called Gemini Earn, which offered high-interest rates on cryptocurrencies. Genesis, in partnership with Gemini, was also a participant in this program. The initiative was terminated in November, leading to the suspension of customer access to their funds. The legal action follows a series of collapses and issues within the cryptocurrency industry, marking another instance of malfeasance in the relatively under-regulated crypto landscape.

Attorney General James argued that this case represents yet another example of unscrupulous actors causing harm in the under-regulated cryptocurrency sector.

Both Digital Currency Group (DCG) and Gemini have expressed their intent to contest the allegations. DCG’s founder, Barry Silbert, strongly refuted the charges, asserting that honesty and integrity have always been the guiding principles of the organization and dismissed the allegations as baseless.

This lawsuit is the latest development arising from the turmoil that rocked the crypto industry in the previous year as digital currency markets experienced significant volatility.

The three companies had collaborated on Gemini Earn, a program introduced in 2021 that permitted users to lend their cryptocurrency to Genesis in exchange for interest rates exceeding 7%. The prosecutors contended that Gemini was aware of Genesis’s shaky financial situation from the program’s inception but failed to inform customers about the associated risks, instead claiming that rigorous vetting had been conducted.

In June 2022, Genesis faced more than $1 billion in losses due to the collapse of another cryptocurrency firm, further increasing the risks. Prosecutors alleged that Genesis and DCG attempted to conceal this situation through financial maneuvering and false reporting, even as they publicly asserted the strength of their balance sheet.

Notably, Genesis and DCG had already been facing fraud claims related to their efforts against Gemini, a cryptocurrency exchange founded by the Winklevoss twins. Gemini responded by stating that the lawsuit supported their claims against Genesis and expressed disagreement with being named in the action.

The lawsuit revealed that during the summer of 2022, certain high-level staff at Gemini grew concerned enough to withdraw their own funds.

Attorney General James emphasized the impact on investors, stating that these cryptocurrency companies misled investors and attempted to hide more than a billion dollars in losses, with middle-class investors bearing the brunt of the consequences. She cited an example of a 73-year-old retired grandmother among the 232,000 investors who fell victim to the alleged fraud.