New
York
Attorney
General
Letitia
James
is
not
backing
down
from
her
lawsuit
against
Digital
Currency
Group,
its
founder
and
CEO
Barry
Silbert,
and
Soichiro
“Michael”
Moro,
the
former
CEO
of
DCG’s
wholly-owned
crypto
trading
arm,
Genesis.
On
Tuesday,
James’
office
filed
a
motion
in
opposition
to
DCG’s,
Silbert’s
and
Moro’s
motions
to
dismiss
the
case
filed
in
March.
Along
with
crypto
exchange
Gemini,
James’
office
has
accused
Genesis,
DCG,
Silbert
and
Moro
of
defrauding
investors
by
working
together
to
cover
up
a
gaping
$1
billion
hole
in
Genesis’
balance
sheet
caused
by
the
wipe-out
of
Singapore-based
crypto
hedge
fund
Three
Arrows
Capital
(3AC).
At
the
time
of
its
implosion,
3AC
was
Genesis’
second-largest
borrower.
According
to
James’
October
suit,
Genesis
and
DCG
made
“false
assurances”
on
Twitter
that
DCG
had
absorbed
Genesis’
losses,
designed
to
put
investors
at
ease
and
prevent
them
from
calling
in
their
open
loans.
But
instead
of
actually
covering
Genesis’
losses,
DCG
allegedly
just
wrote
its
subsidiary
firm
a
promissory
note
–
essentially
an
IOU
meant
to
create
the
appearance
of
liquidity
–
pledging
to
pay
Genesis
$1.1
billion
over
ten
years
at
1%
interest.
DCG,
James’
suit
alleges,
“never
made
a
single
payment
under
the
Note.”
In
November
2022,
Genesis
halted
withdrawals
and
declared
bankruptcy
two
months
later.
DCG
and
Silbert
have
denied
that
the
promissory
note
was
a
sham.
In
their
motions
to
dismiss,
lawyers
for
DCG
and
Silbert
claimed
that
the
note
was
fully
vetted
and
binding,
adding
that,
in
addition
to
the
note,
DCG
transferred
hundreds
of
millions
of
dollars
and
assets
into
Genesis
to
fill
the
hole
in
its
balance
sheet.
The
tweets
reassuring
investors
of
Genesis’
“strong”
balance
sheet,
they
argued,
were
simply
“corporate
puffery”
–
not
lies.
James’
latest
motion
argues
that
the
tweets
weren’t
simple
puffery:
they
were
“misrepresentation
of
existing
facts”
made
to
“mislead
the
investing
public”
–
a
violation
of
New
York’s
strict
anti-fraud
law,
the
Martin
Act.
Midnight
strategy
meeting
In
a
transcript
of
a
late-night
June
15,
2022
Microsoft
Teams
chat
attached
to
James’
motion,
Silbert,
Moro
and
various
high-level
Genesis
executives
strategized
about
how
to
respond
to
investors
in
the
wake
of
3AC’s
collapse.
“I
know
I
sound
like
a
conspiracy
theorist
but
I’m
very
concerned
about
any
leakage
of
our
overall
net
position,”
then-Managing
Director
Matthew
Ballensweig,
wrote
in
the
16-person
chat.
“I
agree
with
the
caution,”
Moro
responded.
Later
that
night,
after
some
members
of
the
team
had
a
call
to
discuss
the
3AC
situation,
another
employee,
Genesis’
managing
head
of
trading
Michael
Paleokrassas,
wrote
to
say:
“Not
sure
anyone
is
awake,
but
starting
to
see
a
steady
flow
of
calls
starting.”
The
next
morning,
another
employee
said,
“We’ve
been
defen[d]ing
the
castle
all
night
and
day
on
[the]
phone
with
depositors,
prospects,
etc.”
Silbert
chimed
in,
saying:
“Is
there
anything
we/DCG
can
do
to
further
install
confidence
in
genesis…the
word
on
the
street
is
that
genesis
is
the
‘blue
chip’
in
this
mess.
We
need
to
continue
to
perpetuate
that
of
course.”
James’
suit
alleges
that
these
conversations
were
part
of
a
“concerted
misinformation
campaign
to
conceal
Genesis’
financial
weakness
to
induce
investors
to
continue
supplying
cryptocurrency
to
Genesis”
A
representative
for
DCG
declined
to
comment
on
the
NYAG’s
latest
motion,
stating
the
company’s
stance
on
the
matter
“remains
unchanged”
from
the
position
illustrated
in
DCG
and
Silbert’s
motions
to
dismiss,
and
calling
the
suit
“meritless.”
“Circle
of
Trust”
The
newly-released
Microsoft
Teams
chats
expand
on
previous
examples
of
Silbert,
Moro
and
other
employees
strategizing
internally
to
prevent
word
of
Genesis’
problems
from
leaking
to
investors,
while
publicly
tweeting
that
everything
was
fine,
James’
lawsuit
alleged.
In
Silbert’s
own
motion
to
dismiss,
his
lawyers
attached
emails
and
instant
messaging
threads
showing
his
response
to
the
fallout
from
3AC’s
collapse.
In
one,
Silbert
said
“we
are
all
focused
on
making
sure
that
the
trust
and
confidence
in
Genesis
remains
high
because
we
can’t
risk
money
leaving
Genesis
and
depleting
[DCG’s]
liquidity.”
He
added
that
“even
though
[DCG’s]
liquidity
is
super
super
strong
right
now”
the
hole
in
Genesis’
balance
sheet
is
“super
confidential/sensitive
stuff,
so
please
don’t
share
with
anybody”
outside
of
“the
circle
of
trust.”
Three
days
after
that,
on
June
24,
2022,
Silbert
told
colleagues:
“We
just
can’t
allow
people
inside
or
outside
[to]
question
Genesis’
solvency.”
Martin
Act
Violations?
James’
motion
of
opposition
re-asserts
her
office’s
claim
that
“each
of
the
DCG
defendants”
–
meaning
DCG,
Silbert
and
Moro
–
were
well
aware
of
the
allegedly
fraudulent
practices
being
committed
to
make
Genesis
look
solvent,
a
violation
of
New
York’s
strict
anti-fraud
law,
the
Martin
Act.
“The
DCG
Defendants
were
actively
involved
in
Genesis’
day-to-day
affairs…including
attending
daily
meetings
to
discuss
Genesis’
communications
with
its
investors,”
the
motion
alleges.
The
Martin
Act
broadly
prohibits
any
fraudulent
business
activities
relating
to
the
purchase,
exchange,
promotion,
advertisement
or
sale
of
any
securities
or
commodities.
The
NYAG’s
office
has
pursued
cases
against
a
number
of
crypto
companies
and
entities
under
this
law,
including
its
2019
inquiry
into
Tether
and
Bitfinex.
