Judge Revives New York Fraud Claim Against Barry Silbert, DCG

U.S. District Judge Stefan R. Underhill in Connecticut revived a New York common-law fraud claim against Barry Silbert, Digital Currency Group and other defendants in a class action over the Genesis Yield lending program, while leaving intact previously allowed federal securities claims. The ruling, filed last Thursday, revises an earlier February order after plaintiffs argued the court had jurisdiction under the Class Action Fairness Act to hear some state-law claims.

The lawsuit centers on Genesis Yield, a program that let customers deposit cryptocurrency in exchange for interest. Plaintiffs say Genesis suspended withdrawals and then filed for bankruptcy in early 2023. They assert Silbert, DCG and other defendants knowingly misled customers about Genesis’ financial condition and its risk controls before the program stopped allowing withdrawals.

Underhill concluded the complaint includes factual allegations sufficient to revive the New York common-law fraud count. At the same time, the court dismissed claims under Illinois, Kansas, Nevada and Texas law and placed consumer-protection claims from California, Florida and New York on hold. The federal securities claims that the judge allowed to proceed in February remain in the case.

Plaintiffs persuaded the court that CAFA permits a federal court to consider certain state-law claims alongside federal claims in this class action. The judge found that some state claims did not meet pleading standards or presented issues better addressed later, prompting dismissal or a stay for those counts.

Digital Currency Group described the allegations as ‘baseless' and pledged to ‘vigorously defend' itself. With the New York fraud count revived and the federal securities claims active, portions of the litigation will move forward in federal court while defendants may file answers, seek further procedural relief or bring additional motions. The case is among several legal disputes stemming from Genesis’ bankruptcy and failures in the crypto lending sector in 2022–2023.