New York AG accuses Gemini, Genesis, and Digital Currency Group of defrauding investors out of more than $1 billion

While Gemini revised its estimate of Genesis’s credit rating from investment grade to junk in February 2022, it did not publicly reveal the update to investors, the lawsuit alleges. In July 2022, Gemini’s board of managers discussed ending Gemini Earn because of risks associated with Genesis, with some of Gemini’s risk personnel allegedly withdrawing their own investments from the program.  

Here’s where crypto runs into issues. You can say what you like about the technology. You can attack or defend the principles. And there are probably going to be reasonable arguments on either side of the fence.

What you cannot argue about is this: crypto has attracted a huge number of bad actors, who would have been bad actors in TradFi as much as DeFi, but the barriers to entry for bad actors in crypto are lower.

The philosophical case for crypto is decentralization and the removal of gatekeepers, which in theory is a noble goal. The unfortunate reality is that removing those gatekeepers, checks and balances also opens the door for con artists, scammers, and criminals. The pseudonymous and unregulated nature of crypto makes it ripe for abuse.

Whereas the traditional financial system has clear and established know-your-customer and anti-money laundering regulations, crypto exchanges and platforms often have weak or non-existent KYC - by design. This enables bad actors to easily hide behind anonymous wallet addresses without revealing their true identities. There is far less accountability compared to traditional finance.

The lack of regulatory oversight (and the unwillingness of the SEC to provide clarity) in crypto creates an environment where pump-and-dump schemes, market manipulation, and outright fraud are rampant. Billions have been stolen in crypto hacks, rug pulls, and exit scams, with little chance of recovery for victims. Clever con artists easily separate naive investors from their cash.

This is not to say that crypto itself is evil or that everyone involved is a criminal. The folks I know who work in the space are legitimate developers and investors who believe in the technology. But the combination of anonymity, lack of accountability, and absence of regulation has attracted a massively unsavory element.

Other nascent technologies like the early internet - and, even to this day, email - also struggled with misuse by bad actors, and they matured and strengthened safeguards over time. Perhaps crypto will follow a similar progression as the industry evolves. For now, the sheer amount of fraud and financial crime is astonishing.

Yes, the principles of decentralization and disintermediation resonate with those of us who - like myself - are weary of big banks and government oversight.

But freedom without guardrails, transparency, accountability, and effective deterrence fosters an environment where criminals and s**theads thrive.

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