Crypto exchange Gemini, led by the Winklevoss twins, has recently filed a lawsuit against the conglomerate Digital Currency Group (DCG) and its CEO Barry Silbert. The lawsuit accuses Silbert of defrauding creditors, specifically Gemini, the largest creditor of DCG’s subsidiary, bankrupt crypto lending firm Genesis. According to the lawsuit, Silbert committed fraud by continuing the Earn Program despite Genesis being “massively insolvent.” Gemini had initially notified Genesis of terminating the Earn program in October 2022, but Silbert personally convinced them to continue. The lawsuit alleges that Silbert was aware of Genesis’s insolvency and still encouraged Gemini’s participation. Gemini is now seeking to recover funds lost due to Silbert’s false representations and DCG’s involvement in facilitating Genesis’s fraud against Gemini.
Accusations of False Financial Reports and Covering Losses
The lawsuit further claims that when Three Arrows Capital (3AC) collapsed in June 2022, it caused a $1.2 billion deficit in Genesis’s balance sheet. However, Silbert allegedly concealed the losses and falsely stated that DCG had absorbed them. Cameron Winklevoss, co-founder of Gemini, accused Silbert, DCG, and Genesis of conspiring to create false financial reports to deceive Gemini and creditors. In addition, the lawsuit reveals that instead of covering the losses as they had informed Gemini, DCG issued Genesis a 10-year promissory note with a 1% interest rate. The note’s value was significantly less than its $1.1 billion face amount.
Gemini’s decision to file the lawsuit did not come as a surprise, as the exchange had previously warned DCG of potential legal action if the issue was not resolved. The U.S. Securities and Exchange Commission (SEC) had also filed a lawsuit against Gemini and Genesis in January, accusing them of offering unregistered securities through the Earn program. Furthermore, the New York State’s Department of Financial Services had been investigating Gemini’s claims regarding the assets in its Earn lending program, as many users believed their assets were protected by the Federal Deposit Insurance Corporation.
Gemini’s lawsuit against Digital Currency Group and CEO Barry Silbert alleges fraud and deceit in their handling of the bankrupt crypto lending firm Genesis. The lawsuit claims that Silbert knowingly continued the Earn Program despite Genesis’s insolvency and that false financial reports were created to hide the truth from Gemini and creditors. Gemini is seeking to recover funds lost due to Silbert’s actions and DCG’s participation in facilitating Genesis’s fraud. This legal action follows previous warnings from Gemini and ongoing investigations by regulatory authorities.