New York AG Pushes Back Against DCG, Silbert’s Motion to Dismiss Fraud Case

On Taylor, March 9th, DCG, Silbert, and Moro submitted motions to dismiss our case. On the following Tuesday, James’ team countered with a filing opposing their motions.

As a researcher investigating the allegations made against Genesis, DCG, Silbert, and Moro by Gemini and James’ office, I uncovered that these entities are suspected of defrauding investors through a coordinated effort to conceal a $1 billion shortfall in Genesis’ balance sheet. This financial hole was the result of the collapse of Singapore-based crypto hedge fund Three Arrows Capital (3AC), which at the time was Genesis’ second-largest borrower.

Based on James’ October lawsuit, Genesis and DCG reportedly gave false promises on Twitter that DCG had taken over Genesis’ financial losses. This deception was intended to calm investors and prevent them from demanding repayment of their outstanding loans. However, instead of truly compensating Genesis for its losses, DCG supposedly issued a promissory note to one of its subsidiaries as a form of IOU. This note pledged to pay Genesis $1.1 billion over the course of ten years with an annual interest rate of 1%.

As a researcher investigating this case, I would put it as follows: According to James’ lawsuit against Digital Currency Group (DCG), the organization never made a payment under the Note at any point. The surprising turn of events occurred in November 2022 when Genesis suspended all withdrawals, and they eventually filed for bankruptcy in January 2023.

DCG and Silbert have argued that the promissory note was legitimate and enforceable in their motions to dismiss the case. They maintained that the note underwent thorough scrutiny before being executed, and besides, DCG transferred substantial funds and assets to Genesis to strengthen its financial position. The reassuring statements about Genesis’ solid balance sheet on social media were described as mere marketing hype rather than falsehoods.

James’ recent proposition asserts that the tweets weren’t merely exaggerations: they constituted “dissemination of false information” with the intent to “deceive the investment community,” which is considered a breach of New York’s stringent anti-deception law, the Martin Act.

Midnight strategy meeting

On a Microsoft Teams conversation transcript from June 15, 2022, past midnight, Silbert, Moro, and other top Genesis executives held a discussion, planning their approach to addressing investors following the demise of 3AC.

“Matthew Ballensweig, our former managing director, expressed concern in the group chat, saying ‘I have reason to be worried about any potential disclosure of our total financial standing.'”

“I agree with the caution,” Moro responded.

After the team’s late-night discussion about the 3AC situation, I, as Genesis’ managing head of trading, penned down an email expressing my thoughts.

“Not sure anyone is awake, but starting to see a steady flow of calls starting.”

I spent the previous night and day fielding numerous phone calls from depositors and prospective clients, acting as a fortification against their concerns and inquiries.

As a crypto investor closely following the Genesis situation, I believe it’s crucial for us at DCG to take actions that reinforce confidence in this project. With rumors circulating that Genesis is the ‘blue chip’ in this market turmoil, we must uphold and strengthen this reputation.

James’ lawsuit claims that these discussions constituted a “coordinated effort to spread false information, hiding Genesis’ financial instability and persuading investors to keep providing cryptocurrency to Genesis.”

A spokesperson for DCG chose not to respond to the New York Attorney General’s recent filing, maintaining that DCG’s perspective on this issue hasn’t shifted since their earlier motions to throw out the case. They also characterized the lawsuit as baseless.

“Circle of Trust”

As a crypto investor, I’ve been closely following the developments surrounding Genesis and the allegations against Microsoft Teams employees. The recent revelation of internal chats on Microsoft Teams sheds new light on the situation. Previously, there were instances where key personnel, including Silbert and Moro, reportedly worked behind the scenes to keep investors in the dark about Genesis’ problems. Simultaneously, they publicly reassured the community through tweets that everything was under control. According to James’ lawsuit, this discrepancy between private and public communication raises serious concerns.

In Silbert’s self-initiated request to discard the case, his legal team provided emails and chat logs revealing Silbert’s reactions to 3AC’s downfall. In one instance, Silbert expressed concern, stating “we need to keep up the trust and faith in Genesis as we can’t afford to have funds draining from Genesis and depleting DCG’s liquidity.”

Despite DCG’s current robust liquidity, Genesis’ financial discrepancy is considered highly confidential information that should be kept within a trusted circle and not shared externally.

On June 24, 2022, three days after the event in question, Silbert addressed his team with the following sentiment: “It’s essential that we prevent anyone from doubting Genesis’ financial stability, both internally and externally.”

Martin Act Violations?

As a crypto investor, I strongly disagree with James’ statement that “each of the DCG defendants,” which includes DCG, Silbert, and Moro, were unaware of any allegedly fraudulent practices taking place to make Genesis appear solvent. This goes against the strict anti-fraud laws in New York, specifically the Martin Act. I believe that all parties involved had full knowledge of these actions, which is a clear violation of the law.

I myself, being an active participant in Genesis’ operations, regularly attended their daily meetings where we discussed important communication matters with our investors. According to the legal claim, the DCG Defendants were deeply involved in these day-to-day affairs.

The Martin Act encompasses a wide range of unlawful business practices concerning the transaction of securities or commodities, including but not limited to deceitful actions during purchasing, trading, marketing, or selling these financial instruments.

As a crypto investor, I’ve noticed that the New York Attorney General’s (NYAG) office has been actively investigating and pursuing cases against several crypto companies and entities using the Martin Act. For instance, they initiated an investigation into Tether and Bitfinex back in 2019.