The cryptocurrency exchange, Gemini has dragged Digital Currency Group (DCG), the bankrupt digital lender of Genesis’ parent company, and its CEO, Barry Silbert, to court. In a lawsuit filed today (Friday) before a court in New York, the exchange accused both parties of “encouraging and facilitating” Genesis’ fraud against the firm.
Gemini Finally Challenges DCG in Court
According to the New York-based exchange, thousands of its users signed up for the Gemini Earn Program through which they lent their digital assets to Genesis in order to earn profit. However, Gemini in cooperation with its parent company lied about its “purportedly robust risk-management practices,” Gemini alleged in its court filing.
Instead, Genesis “was recklessly lending huge amounts to a counterparty [DCG and Silbert] knew [it] was using these huge amounts to fuel a risky arbitrage trading strategy,” Gemini contended. In November, following FTX’s collapse and the subsequent bankruptcy filing in New York, Genesis paused withdrawals on its platform, citing “unprecedented market turmoil.” The lender even sought an emergency loan of $1 billion from investors.
In the court filing, Gemini said that Genesis as a result of this exposure had failed to honour its debt to the lenders of the Earn Program. Cameron Winklevoss, the Co-Founder of Gemini, has previously claimed that DCG owed its customers over $900 million. On Tuesday, the CEO even proposed the ‘best and final offer’ of $1.47 billion in phased repayments to Gemini, to be completed by 2028.
Hey @BarrySilbert, I'd like to invite you to a Twitter Space to discuss our Best and Final Offer.
— Cameron Winklevoss (@cameron) July 5, 2023
No lawyers. No advisors. Just friends. I know Earn users would love to hear from you. You can be the first to tell them if you're accepting the deal.
Let me know when you're free! https://t.co/EfL9lw2PNe
DCG Lied about Absorbing Genesis’ 3AC Losses: Gemini
In its complaint, Gemini said it wants to recover the damages and losses that it had racked up as a direct result of Silbert’s “false, misleading, and incomplete representations and omissions” to its firm. Specifically, Gemini contended that the DGC Founder ‘falsely represented’ that the parent company had absorbed, through the infusion of $1.1 billion, losses totalling $1.2 billion that Genesis incurred due to its exposure to the now-bankrupt crypto lender Three Arrow Capital (3AC). Ultimately, Silbert allegedly revealed that the supposed infusion was a promissory note not activatable until 2032.
"Silbert knew that Genesis was massively insolvent, but did not disclose that fact to Gemini," the cryptocurrency exchange said. "Indeed, Silbert went far beyond that fraudulent omission, representing to Gemini that, although the Genesis loan portfolio was 'complex,' it could be successfully unwound within a reasonable period of time."
Gemini added: "That is, Silbert told Gemini that Genesis faced only a short-term mismatch in the timing of its loan portfolio, concealing the reality that Genesis had a massive hole in its balance sheet and would be unable to honour its obligations to Gemini and others, because DCG had not actually assumed the 3AC losses."
Since Genesis filed for bankruptcy protection in January 2023, Gemini has been working with the cryptocurrency lender “on a consensual restructuring” that would maximize recovery for Gemini Earn lender “without prolonged delay,” Gemini noted. The exchange added that it was separately pursuing its case against Genesis in the digital lender’s bankruptcy case.
Gemini and DCG Trade Blames
Sharing snippets of the court filing through Twitter on Friday, Winklevoss said the "fraud" committed against Gemini "goes to the very top."
"DCG — and Barry personally – are direct participants in the fraud that has damaged Gemini and hundreds of thousands of Earn users," Winklevoss wrote. "This complaint is an important step in holding them accountable for what they have done."
9/ This fraud goes to the very top. Barry Silbert and other DCG executives were directly involved in these lies and they lied again and again to conceal the truth from Gemini and other creditors. pic.twitter.com/DLW41mm3YP
— Cameron Winklevoss (@cameron) July 7, 2023
In a statement released through Twitter on Friday, DCG called Gemini's lawsuit "yet another publicity stunt from Cameron Winklevoss to deflect blame and responsibility from himself and Gemini, which operated the Gemini Earn program."
"Any suggestion of wrongdoing by DCG or any of its employees is baseless, defamatory, and completely false," DCG added.
DCG Statement: pic.twitter.com/Mz9EMTPgLT
— Digital Currency Group (@DCGco) July 7, 2023
Meanwhile, Gemini and Genesis were both sued in January by the US Securities and Exchange Commission which claimed that the feuding companies offered unregistered securities to the public through their crypto lending products. In late 2022, a certain group of investors subjected Gemini to a class-action lawsuit over the Earn Program which had promised up to 7.4 percent yield to customers for lending out their digital assets.
