Attorneys representing Digital Currency Group (DCG) and its senior executives, including CEO and founder Barry Silbert and former CEO of Genesis, Soichiro “Michael” Moro, have made a final effort to dismiss the civil fraud lawsuit filed by New York Attorney General (NYAG) Letitia James. The legal dispute, which implicates cryptocurrency exchange Gemini and the now-insolvent Genesis, centers around allegations of investor deception.

The NYAG’s lawsuit asserts that Genesis and DCG issued misleading reassurances on social media, falsely claiming that DCG had absorbed the substantial losses incurred by Genesis due to the collapse of Singapore-based crypto hedge fund Three Arrows Capital (3AC). Instead of an actual financial infusion, the suit alleges that DCG used a promissory note, committing to repay Genesis $1.1 billion over ten years at a mere 1% interest rate. This maneuver, according to the NYAG, was intended to placate investors and dissuade them from withdrawing their loans.

While Genesis and Gemini have reached settlements with the NYAG, DCG, Silbert, and Moro have vigorously contested the fraud accusations, describing the lawsuit as baseless. In motions to dismiss filed in March, they defended the promissory note as a legitimate and binding financial instrument, thoroughly vetted and accompanied by substantial asset transfers to bolster Genesis’ balance sheet. They argue that their social media statements about Genesis’ financial health were not deceptive but rather “corporate puffery.”

In rebuttal, the NYAG maintains that these statements were not mere exaggerations but deliberate misrepresentations designed to mislead investors, violating New York’s stringent anti-fraud legislation, the Martin Act. To support this claim, James included transcripts of internal communications from a strategy meeting held after 3AC’s collapse in June 2022, asserting these messages expose a calculated effort to conceal the financial shortfall.

DCG’s latest court filings acknowledge the late-night strategy meeting but argue that these communications reflect lawful, good-faith efforts to support a subsidiary, not evidence of a conspiracy. The filings emphasize DCG’s proactive measures, including offering advice, financial assistance, and reviewing Genesis’ public communications.

An email from Silbert to Moro and other employees, dated June 28, 2022, underscores DCG’s commitment to addressing the equity gap, urging collaborative efforts to find viable solutions. Silbert’s attorneys argue that this email demonstrates genuine intentions to remedy the financial situation.

Reiterating their defense, DCG’s lawyers assert that the promissory note was a proper financial transaction, providing significant value to Genesis’ estate and benefiting its creditors more than they would have received without DCG’s intervention. They contend that the note enabled Genesis to endure the 3AC crisis and only faced severe liquidity issues following FTX’s collapse.

Silbert’s legal team similarly defends his actions, stating that his signing of the promissory note reflects his continued faith in Genesis’ potential recovery, despite its financial difficulties. They argue that his efforts were in good faith, aimed at sustaining Genesis through a turbulent period.

As the legal battle unfolds, the outcome of this high-stakes case could have far-reaching implications for the regulatory landscape of digital assets and the classification of NFTs as securities.