New York Attorney General Tish James Announced this week Her office reached a $2 billion settlement with a group of cryptocurrency companies that collectively operated an investment program called Gemini Earn, which appears to have concealed more than $1 billion in losses from investors and defrauded about 29,000 New Yorkers.
The settlement bars the companies from continuing to do business in the state and sets up a victims' fund to return some money to investors after creditors have been paid. A group of creditors has filed separate lawsuits against the companies in bankruptcy court.
Just a few years ago, some of these crypto schemes were aggressively promoted as can't lose, that it was the future or you'd be left behind. For a while it seemed really good, but we now know that it often only seemed that way because customers were being duped. The trick with any Ponzi scheme is to make the profits look big at first.
“While it's unfortunate that this was necessary, we applaud James for trying to clean up this mess and provide some compensation to those affected. It won't pay off everyone, but in addition to erasing some of the damage, we hope this settlement serves as a warning to fraudulent finance companies that they won't get away with these scams for much longer.”
Those behind Gemini, including the Winklevoss twins, Zuckerberg's foes-turned-cryptocurrency scammers, only faced civil penalties like those in the previous settlement. New York State Department of Financial Services SEC fines were also levied. Other crypto advocates have faced tougher scrutiny, most notoriously FTX whiz kid Sam Bankman-Fried, whose “Oh my goodness” jokes failed to impress a jury last year. He is currently serving a 25-year sentence in federal prison for defrauding clients out of billions of dollars.
I wouldn't go so far as to say there is anything inherently scary about the concept of cryptocurrency, but it is certainly interesting that this particular technology has featured disproportionately in some of the most spectacular and widespread cases of corporate fraud in recent memory. This is partly a reflection of cryptocurrency's appeal to bad actors as a kind of currency that isn't money, but it's also a stain on law enforcement and regulators, who have allowed it to grow into a series of multi-billion dollar frauds essentially without restraint, although some have since erupted.
Let's not make the same mistakes again. Hopefully, authorities will be more hawkish in their monitoring of the remaining cryptocurrency companies and more swift in their response to the use of this and other technologies that could be used to deceive consumers. Almost everyone would agree that innovation is a good thing in principle. However, many see it as an opportunity to jump on the new bandwagon and add the appearance of excitement and opportunity to a mere scheme.
While individual investors and consumers can and should certainly do their own research when deciding how to invest large sums of money, ultimately it is the job of law enforcement and regulators to stop these catastrophes before they happen.
