“These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result,” Letitia James, New York attorney general, said in a statement. “Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn.”

Gemini did not return a request for comment, but in a post on X, formerly Twitter, said it “looks forward to defending ourselves” against the lawsuit. Neither Genesis nor DCG returned requests for comment.

The lawsuit filed against the trio is the latest in a line of civil cases brought against crypto companies in the US this year. In February, the SEC reached a settlement with another exchange, Kraken, which agreed to halt a service that gave US customers the ability to earn rewards for locking up their crypto. The regulator also issued crypto firm Paxos a warning of intent to sue over its BUSD stablecoin, which the SEC asserted was a security and hence was required to comply with securities regulations. In June, the regulator filed charges against exchanges Binance and Coinbase on consecutive days, accusing both of violating securities laws.

A series of crypto founders have also found themselves in custody. Bankman-Fried was arrested in December, Alex Mashinsky of crypto lender Celsius in July, and Su Zhu of Three Arrows Capital in September.

In bringing its suit, the attorney general is seeking to prevent Gemini, Genesis, and DCG from doing business in New York, the press release states, as well as “restitution for all defrauded investors and disgorgement of all ill-gotten gains.” But the implications of the lawsuit may spill into other quarters of the crypto sector too.

The case could cause delays in the much-anticipated approval of a bitcoin exchange-traded fund, a financial vehicle that would allow regular people to invest in bitcoin through their regular stock broker, speculates Travis Kling, founder of Ikigai Asset Management, a crypto asset management firm. Another DCG subsidiary, Grayscale, is among the firms lining up for approval. But it is “hard to imagine that the first bitcoin ETF [will come from Grayscale]” while these charges against its parent company are outstanding, says Kling.

Given the extent to which DCG is entangled in the cryptosphere, by means of its various venture investments, says Stephen Diehl, a crypto-skeptic commentator, a conviction and large financial penalty could also have second-order effects that are difficult to predict at this juncture. “It’s a massive holding company with affiliations with an enormous part of the American crypto industry,” says Diehl. “It’s a massive spoke in the hub of crypto.”

Meanwhile, the prospect of further enforcement action against members of the crypto industry looms. “The final shoe hasn’t dropped,” says Klippsten. “Until off-shore, unregulated, and opaque crypto businesses are brought to heel, I don’t think it will stop.”

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