(Web Desk) - US prosecutors have accused three high-profile cryptocurrency firms of defrauding investors of more than $1bn.

New York Attorney General Letitia James said Gemini, a crypto exchange, had lied to customers about the risks of an investment account it offered, which paid high interest rates on crypto.

Genesis, a crypto lender, and its parent company Digital Currency Group were also involved in the programme.

It was halted last November, cutting off customer access to funds.

That came shortly after the collapse of FTX, the cryptocurrency exchange run by Sam Bankman-Fried, who is now fighting fraud charges of his own.

Genesis, which had loaned heavily to his companies, filed for bankruptcy a few months later.

Attorney General James said her case concerned "another example of bad actors causing harm throughout the under-regulated cryptocurrency industry".

Digital Currency Group (DCG) and Gemini each said they would fight the claims.

"Honesty and integrity have always been my guiding principles," said DCG founder Barry Silbert, calling the allegations "baseless".

The legal action is the latest to emerge from the implosions in the crypto industry last year as markets for digital currencies soured.

The three companies had worked together on Gemini Earn, which was launched in 2021 and allowed users to lend crypto to Genesis in exchange for interest rates of more than 7%.

In the lawsuit, prosecutors said Gemini was aware that Genesis had shaky financials from the start of the programme.

But the lawsuit said Gemini failed to alert customers about the risks of lending to the company, instead claiming that it had been subject to vetting.

In June 2022, the risks increased when Genesis was hit by more than $1bn in losses from the collapse of another crypto firm.

Prosecutors said Genesis and DCG tried to hide the situation with financial manoeuvring and false reports, including to Gemini, while claiming publicly that its balance sheet was strong".

Genesis and DCG were already facing fraud claims about those efforts from Gemini, a crypto exchange founded by the Winklevoss twins, who are known for claiming that their former Harvard classmate Mark Zuckerberg stole their idea to invent Facebook.

Gemini said the lawsuit confirmed its claims against Genesis and it disagreed with being named as well.

"Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position," it said in a statement shared on social media.

But according to the lawsuit, in the summer of 2022, some top Gemini staff became worried enough to withdraw their own funds.

"These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result," Attorney General James said.

She cited a retired 73-year-old grandmother among the 232,000 investors who were victims of the alleged fraud.