Judge revives fraud claim against Barry Silbert, DCG in Genesis Yield lawsuit

A federal judge revived a fraud claim against Barry Silbert, Digital Currency Group and other defendants in an investor lawsuit over the failed Genesis Yield program, while allowing the case's federal securities claims to continue moving forward.

The ruling, filed last Thursday in the U.S. District Court for the District of Connecticut, revises an earlier February decision after plaintiffs argued the court had authority under the Class Action Fairness Act to consider their state-law claims.

Judge Stefan Underhill agreed, bringing those claims back before reviving the New York common law fraud claim while dismissing or staying the remaining state consumer protection claims.

The class action centers on Genesis Yield, a lending program that let customers deposit crypto in exchange for interest payments. Investors allege Silbert, DCG and other defendants knowingly misled customers about Genesis' financial health and risk controls before it suspended withdrawals and later filed for bankruptcy in early 2023.

DCG has previously called similar allegations "baseless" and said it would vigorously defend itself. The judge found that those allegations were sufficient for the common law fraud claim to move forward.

In a separate order filed the same day, Underhill also certified DCG's request for an interlocutory appeal, allowing the company to seek an immediate appeal at the Second Circuit to review whether Genesis Yield qualifies as a security under federal law.

The judge said a ruling in DCG's favor could eliminate the plaintiffs' remaining federal securities claims.

Meanwhile, consumer protection claims under California, Florida and New York law were stayed, while similar claims under Illinois, Kansas, Nevada and Texas law were dismissed.

The court's February decision to allow the plaintiff's federal securities claims to proceed remains unchanged.