Troubled cryptocurrency firm Digital Currency Group (DCG) is facing more legal issues as its subsidiary, Genesis Capital, has been slapped with a new class action lawsuit.
A group of Genesis creditors filed a securities class action (SCA) lawsuit against DCG and its founder and CEO, Barry Silbert, alleging violations of federal securities laws.
The lawsuit was filed by Connecticut-based law firm Silver Golub & Teitell (SGT) on behalf of individuals and entities that entered into digital asset lending agreements with Genesis.
SGT is known for handling major industry lawsuits, including a class action suit filed against Coinbase in March 2022.
The new complaint against DCG and Silbert alleges that Genesis engaged in an unregistered securities offering in violation of securities laws by executing lending agreements involving securities without qualifying for an exemption from registration under the federal securities laws.
The lawsuit also alleges that Genesis committed securities fraud through a scheme to defraud potential and existing digital asset lenders by making false and misleading statements.
According to the plaintiffs, Genesis intentionally misrepresented the financial condition of Genesis, violating Section 10(b) of the United States’ Securities Exchange Act.
Founded in 2015, DCG is a Connecticut-based crypto firm that serves as the parent company of multiple digital asset and blockchain-focused subsidiaries, including Genesis, digital asset manager Grayscale Investments, crypto mining firm Foundry, and crypto media outlet Coindesk.
DCG’s current CEO, Silbert, maintains a controlling 40% equity stake in the firm and also serves as chairman of its board of directors.
The news comes as Genesis goes through its first bankruptcy hearings on January 23, 2021, after the firm filed for bankruptcy on January 19.
The bankruptcy filing came a few months after Genesis halted withdrawals on November 16, 2020, as it became unable to honor redemption requests amid the bear cryptocurrency market.
Gemini, a crypto trading platform founded by the Winklevoss brothers, is one of the biggest creditors of Genesis, with the firm reportedly owing $900 million to Gemini’s clients.
On January 20, 2021, Gemini co-founder Cameron Winklevoss took to Twitter to declare that the firm has been preparing to take direct legal action against DCG, Silbert, and “others who share responsibility for the fraud.”
This lawsuit is another blow to DCG and Silbert, who are already dealing with the bankruptcy of Genesis and the potential legal action from Gemini.
It remains to be seen how this lawsuit will play out and if it will have any impact on the future of DCG and its subsidiaries.