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Gemini Files Lawsuit Against DCG & Barry Silbert; DCG Denies Allegations

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Gemini, the popular cryptocurrency exchange founded by the Winklevoss twins, has filed a lawsuit against Digital Currency Group (DCG) and its founder, Barry Silbert. The lawsuit alleges that DCG and Silbert were involved in fraudulent activities related to the Gemini Earn program and the Genesis bankruptcy case.

According to Cameron Winklevoss, co-founder of the company, Silbert was not only the mastermind behind the fraud committed against creditors but was also directly involved in perpetrating it. Winklevoss took to Twitter to express his frustration, stating that the lawsuit tells the whole story of the deception.

The complaint lodged by the company reveals that Silbert, aware of Genesis’s massive insolvency, attempted to persuade Gemini to continue the Earn program despite the impending termination. 

It is alleged that Silbert misled the company by claiming that Genesis was only facing a timing issue, concealing the true extent of the financial crisis.

Furthermore, the company accuses DCG of providing false financial reports to hide fraudulent activities. A promissory note, presented as a “Current Asset” worth $1.1 billion, was exposed as a sham, with a mere 1% interest rate. 

The balance sheet manipulation and excluding the promissory note from calculations were additional efforts to deceive Gemini and other creditors.

Gemini’s lawsuit claims that the fraud involved high-ranking executives at DCG, including Mark Murphy, who was copied on disseminating fake financial reports. Murphy allegedly failed to correct the reports despite knowing they contained false information regarding DCG’s financial support for Genesis.

DCG Denies Allegations; Calls Gemini’s Lawsuit A Publicity Stunt

In response to the lawsuit, DCG released a statement dismissing the allegations as baseless and defamatory. They labeled the lawsuit a “publicity stunt” by Cameron Winklevoss to deflect blame from himself and Gemini. 

DCG emphasized its commitment to reaching a fair resolution for all parties involved in the Genesis bankruptcy case.

However, as the mediation process approaches its conclusion, both Gemini and DCG await the handling of the case under Chapter 11 bankruptcy law. 

The outcome of this legal battle will have significant implications for the reputation and future of both parties involved, as well as for the thousands of users affected by the Genesis bankruptcy.

Related Reading | Gemini’s Cameron Winklevoss Issues Final Ultimatum To Barry Silbert & DCG

Gemini’s Cameron Winklevoss Issues Final Ultimatum To Barry Silbert & DCG

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Cameron Winklevoss, the co-founder of cryptocurrency exchange Gemini, has fired off a fiery open letter to Barry Silbert, the founder of Digital Currency Group (DCG), on behalf of the 232,000 Earn users with over $1.2 billion of assets trapped in the troubled Genesis company.

Winklevoss didn’t hold back, accusing DCG of engaging in fraudulent behavior under Silbert’s leadership and orchestrating a culture of lies and deceit. 

The letter highlighted the alleged falsification of balance sheets and documents to perpetuate an accounting fraud, all to hide Genesis’ insolvency.

Despite a history of open letters, Winklevoss asserts that Silbert has consistently avoided responsibility and genuine resolution with creditors and Earn users since the withdrawal gates were closed. 

The recent mediation process, which was expected to bring about a solution, has instead granted DCG a gratuitous forbearance on the $630 million owed to Genesis. 

This indefinite delay has caused the ballooning of professional fees to over $100 million, borne by creditors and Earn users.

Gemini Winklevoss Outlines Best & Last Chance For Resolution

In an effort to bring this ongoing crisis to a close, Winklevoss issued a final ultimatum to Silbert and DCG. The letter outlined a best and final offer that creditors are prepared to accept, demanding a response by 4 pm ET on July 6th. 

If DCG fails to agree, Winklevoss stated that Gemini would take legal action, filing a lawsuit against DCG and Silbert personally on July 7th.

The lawsuit will expose Silbert’s alleged role in hiding Genesis’ insolvency and outline his personal liability. Furthermore, Winklevoss intends to advance a non-consensual plan to provide immediate distributions to creditors and Earn users while litigating DCG’s contribution.

Winklevoss also urged the Genesis Special Committee to fulfill its fiduciary duties by filing a turnover motion, putting DCG into default, and demanding immediate payment of the $630 million owed to creditors and Earn users.

Throughout the letter, Winklevoss expressed deep frustration with Silbert’s perceived lack of self-awareness and refusal to acknowledge the harm caused to Earn users and creditors. He implored Silbert to recognize the gravity of the situation and to finally do the right thing.

However, the cryptocurrency community awaits Silbert’s response and the potential fallout from Winklevoss’ ultimatum. This high-stakes confrontation between Gemini and DCG could have far-reaching implications for the cryptocurrency industry and the millions of dollars at stake.

Related Reading | Binance.US Escapes Temporary Restraining Order, Spot Trading Volume Plummets 70%

DCG Denies Involvement In Genesis Capital Bankruptcy Filing

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In a bombshell announcement, Genesis Capital, a Digital Currency Group (DCG) subsidiary, filed for Chapter 11 bankruptcy protection in the Southern District of New York on January 19th. The news sent shockwaves through the financial industry, with many scrambling to understand the implications of this move.

However, in a swift response to the news, DCG released a statement denying any involvement in the bankruptcy proceedings. According to the company’s statement, the decision to file for bankruptcy was made by the independent management team, legal counsel, and financial advisors of Genesis Capital.

The management team is solely in charge of the restructuring process and made the decision to file for bankruptcy. Furthermore, it was clarified that none of the employees or board members of DCG were involved in the said decision.

The company reassured shareholders that operations continue to operate as usual, as will its other subsidiaries, including those of its subsidiary Genesis Global Trading, Inc., which handles spot and derivatives trading, will proceed without interruption.

According to the statement, DCG has a debt of $526 million that is due in May 2023 and $1.1 billion in a promissory note that is due in June 2032 to Genesis Capital. DCG plans to address these obligations as part of its restructuring process and is working with Genesis Capital and other creditors to find a mutually beneficial solution.

However, the bankruptcy filing of Genesis Capital has sent ripples through the financial industry. Many are now wondering how this situation will play out and what it could mean for investors and shareholders. Nevertheless, DCG is determined to find a solution that works for all parties involved.

Genesis Bankruptcy May Impact DCG

The move has raised concerns about the stability of the industry as a whole and has led to speculation about the potential impact on Digital Currency Group (DCG), one of the largest players in the crypto space.

According to a report, the bankruptcy filing is the result of a series of missteps by Genesis and its management team, including aggressive behavior and a failure to adhere to principles of financial prudence when lending. 

Gemini, another major player in the crypto lending space, is also believed to be partly responsible for the bankruptcy filing, with some accusing the firm of evading its own responsibility for the situation.

The bankruptcy filing is not an isolated incident, with several other lending platforms also facing similar financial difficulties. Experts believe that this is indicative of deeper problems within the industry and that there may be a widespread trend of bankruptcies among crypto lending platforms.

The situation has also led to a power struggle among various players within the industry, with many vying for control and revenue ownership of DCG and Grayscale, two of the largest players in the crypto space. 

Some have even accused these companies, along with Genesis, 3AC, and other firms, of forming a conspiracy to help DCG and Grayscale grow at the expense of other players in the industry.

The revelation of these issues has caught the attention of regulators, who may now be closely scrutinizing the actions of these companies. This could potentially affect the future trend of the crypto market and may lead to stricter regulations and oversight in the industry.

Overall, the bankruptcy filing of Genesis is a major blow to the crypto lending industry and raises serious questions about the stability and integrity of the sector as a whole. With more bankruptcies expected to follow, it remains to be seen what the future holds for the crypto lending industry and its players.

Related Reading | Genesis’ “Mega” Bankruptcy Filing Has Liabilities Upto $11B

Genesis’ “Mega” Bankruptcy Filing Has Liabilities Upto $11B

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Crypto lender and DCG subsidiary Genesis has filed Chapter 11 bankruptcy in the federal court of Manhattan. With this, the crypto firm has become the latest to crumble in the FTX contagion and a heavy blow to the empire of DCG boss Barry Silbert.

The crypto broker cited over 100,000 creditors in a “mega” bankruptcy case, with total obligations ranging from $1.2 billion to $11 billion., as per the bankruptcy documents.

According to reports, Genesis filed three separate petitions. One of the statements mentioned that its derivatives and spot trading, broker-dealer, and custody businesses are not included in Chapter 11 and would continue client trading operations.

Under the Chapter 11 plan, the firm contemplates potential sale and equitization transactions to enable the lending business to emerge under new ownership.

Board member at Genesis, Derar Islim, who was appointed as the firm’s interim CEO in August 2022, send out a statement:

While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all its stakeholders.

According to the press release, the firm also announced a restructuring of the lending business to advance ongoing stakeholder discussions further and optimize outcomes for both Genesis clients and Gemini Earn users.

Genesis Bankruptcy Filing Would Speed Up Funds Recovery- Gemini CEO

It needs to be told that Genesis’s parent firms DCG and Gemini were engaged in negotiations after the formerly suspended customer withdrawals in the aftermath of the FTX collapse.

Moreover, the platform-owned high-yield savings product Gemini Earn $900 million. 

According to reports, Genesis has $175 million of its assets locked in the bankrupt FTX. and is estimated to owe creditors $3 billion.

Responding to the latest news, Gemini co-founder Cameron Winklevoss tweeted that Genesis’s bankruptcy filing was a crucial step towards recovering customers’ assets.

“Bankruptcy court provides a much-needed forum for that to happen. Sunlight is the best disinfectant”, he added.

DCG Subsidiary Genesis Preps Up To File Bankruptcy

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DCG’s subsidiary Genesis might soon file bankruptcy and is reportedly in talks with creditors, according to a Bloomberg report.

The development follows after its parent firm Digital Currency Group [DCG], informed its shareholders of suspending dividends until further notice. In a letter sent to its shareholders on 18 Jan., the venture firm stated,

In response to the current market environment, DCG has been focused on strengthening our balance sheet by reducing operating expenses and preserving liquidity. As such, we have made the decision to suspend DCG’s quarterly dividend distribution until further notice.

Crypto conglomerate DCG has found itself in a tough financial spot at its once-prolific lending platform Genesis. Barry Silbert, the business’s owner, has been engaged in negotiations with billionaires Cameron and Tyler Winklevoss.

The duo-led crypto exchange Gemini offered a lending product that fell apart because Genesis, its partner, suspended customer withdrawals.

Back in November, Genesis halted withdrawals following the collapse of the crypto exchange FTX. And the platform owes high-yield savings product Gemini Earn $900 million. 

According to reports, Genesis has $175 million of its assets locked in the bankrupt FTX. and is estimated to owe creditors $3 billion.

Genesis’ Assets To Get Diluted

As its parent business Digital Currency Group came under increasing pressure, the CEO of the cryptocurrency broker asked for more time to sort out its problematic lending operation.

Both Gemini and Genesis were recently involved in a bitter public showdown after the former co-founder Cameron Winklevoss issued an open letter to DCG CEO Barry Silbert accusing him of “bad faith stall tactics.”

He claimed his firm has tried to work out a solution to getting the cash back but was unsuccessful, as reported by TronWeekly.

That said, the exact implication of a Genesis bankruptcy filing on DCG investors is now unknown, but at the very least, they will witness a diluting of their interests, according to a story in The Information.

SoftBank, one of the investors in DCG, wiped off a $100 million interest in the defunct FTX in November. Others include the CapitalG growth fund from Alphabet, Bain Capital, and Ribbit Capital.

In addition, DCG-owned crypto media outlet CoinDesk confirmed with Bloomberg that it is exploring options of partial or full sale with New York-based Lazard as a financial adviser.

Gemini Founder Accuses Genesis of Concealing $1.2B Loss in Open Letter

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In a recent open letter, the founder of Gemini accused the Genesis trading platform of losing $1.2 billion in the 3AC accident and concealing the loss from both Gemini and Digital Currency Group (DCG) users.

The letter also called for the removal of Barry Silbert from his position as head of Genesis and for a new leadership team to be put in place.

Cameron Winklevoss, CEO of Gemini, alleged that Silbert’s trading platform had loaned $2.36 billion in assets to a hedge fund that failed, resulting in a loss of at least $1.2 billion. He accused Silbert of not taking proper action to address the loss, either through restructuring or filling the deficit.

When the loss from 3AC occurred, the total amount of loans held by Genesis was approximately $8 billion. Therefore, the $1.2 billion loss from 3AC represented approximately 15% of the total assets in the loan book.

According to the letter:

Beginning in early July 2022, Barry, DCG, and Genesis embarked on a carefully crafted campaign of lies to make Gemini, Earn users, and other lenders believe that DCG had injected $1.2 billion of actual support into Genesis. 

Genesis & Its Open Lies

Winklevoss’s open letter pointed out a number of lies, which some are, on July 6th, Michael Moro, who was the CEO of Genesis at the time, tweeted that DCG had assumed certain liabilities of the trading platform related to 3AC to ensure that they had the capital to operate and scale the business for the long term.

However, in the open letter, Winklevoss alleges that this statement was “false and misleading” and that DCG had not provided any funding to Genesis to ensure that it could operate.

In internal communications, several individuals involved lied and covered up the truth about the extent of the losses from 3AC in both of Silbert’s companies.

For example, the Head of Trading and Lending of the trading platform sent an email with a document titled “Three Arrows Post-Mortem” to multiple Gemini employees.

The document falsely stated that the losses were absorbed by DCG, leaving the platform with adequate capitalization to continue business as usual. But it’s said by Winklevoss that, in reality, DCG had not absorbed the 3AC losses on its balance sheet.

In the end, the founder of Gemini demanded:

the Board remove Barry Silbert as CEO, effective immediately, and install a new CEO, who will right the wrongs that occurred under Barry’s watch. Genesis lenders, including Earn users, have been seriously harmed and deserve a resolution for the recovery of their assets

Related Reading | Seeking Plea Bargains: Former FTX Engineering Chief Talks to U.S. Federal Prosecutors

DCG & Genesis Under Investigation By US Authorities: Bloomberg’s Report

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US authorities are reportedly investigating the financial dealings of Digital Currency Group (DCG) and its subsidiary Genesis which offers crypto lending services, Bloomberg reported on January 6th, citing people familiar with the matter told.

The person requested anonymity because the investigation has not been publicly disclosed. He told Bloomberg that Federal prosecutors in Brooklyn are examining the transfers between DCG and its subsidiary, as well as the information provided to investors about those transactions.

Additionally, according to the report, Federal prosecutors and the Securities and Exchange Commission are investigating Digital Currency Group and its subsidiaries. The probes are in the early stages, and no wrongdoing has been alleged.

This action was taken shortly after DCG revealed that it had to shutter its wealth management division, known as HQ, by the end of the month. It is due to the persistent bear market in cryptocurrency and the difficult economic climate, as reported by TronWeekly. Additionally, Genesis’ brokerage division was cutting off almost 30% of its workforce. 

Whereas DCG’s founder, Barry Silbert, has recently faced public disputes with Gemini’s founder Cameron Winklevoss. Winklevoss has accused Silbert of delaying efforts to resolve the issue and claimed that his companies are “beyond commingled.”

DCG And Genesis In Trouble

According to Bloomberg, a DCG spokesman was directed by Silbert to respond to a comment request and claimed:

DCG has a strong culture of integrity and has always conducted its business lawfully. We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.

On the other side, Genesis stated that it does not comment on specific legal or regulatory matters but maintains regular communication with regulatory bodies when it receives inquiries.

Furthermore, none of the legal authorities have yet commented. However, Bloomberg stated, “it’s unclear specifically which intercompany activity is drawing scrutiny.”

Nevertheless, according to a report by Bloomberg, the investigation into Barry Silbert’s business empire began before the recent problems at cryptocurrency exchange FTX, in which Silbert is also involved. This information comes from a source familiar with the criminal probe.

Genesis Parent Firm DCG Closes Wealth Management Division Amid Market Slump

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Digital Currency Group (DCG), the parent company of Genesis, has closed its wealth management division named HQ due to the ongoing slump in the cryptocurrency industry and challenging economic conditions, as reported by The Information.

DCG confirmed the closure in an email stating that the division would close its doors on January 31st. The DCG representative said:

Due the state of the broader economic environment and prolonged crypto winter presenting significant headwinds to the industry, we made the decision to wind down HQ, effective January 31st.

DCG and its subsidiary Genesis are facing challenges following the recent collapse of major crypto exchange FTX. Genesis has been seeking additional funding for its lending unit, but some investors have been hesitant due to its connections to other entities within DCG.

Genesis Cut Headcount By 30%

Genesis Trading, the crypto lending arm of Digital Currency Group (DCG), has reportedly cut 30% of its workforce due to financial difficulties and the threat of bankruptcy. 

The company, which is led by Barry Silbert and includes Grayscale Bitcoin Trust and mining company Foundry, has already laid off 20% of its employees and replaced its CEO. 

According to the anonymous source—who requested anonymity since the figures are private—about 60 positions were cut. There are now about 145 employees at the company.

The fresh round of cuts comes after the market turmoil of 2022 and the bankruptcy of Three Arrows Capital, as well as the collapse of crypto exchange FTX and hedge fund Alameda Research, both of which were major clients of Genesis. 

After FTX filed for bankruptcy protection, the company hired bankruptcy attorneys, requested a $1 billion emergency loan, and stopped all redemptions from clients, as per a report by The Wall Street Journal.

Due to the redemption freeze, Silbert has received criticism. Earlier this week, as reported by TronWeekly, CEO Cameron Winklevoss of crypto exchange Gemini, a Genesis client, accused Silbert of “bad faith” tactics.

Winklevoss has asked Silbert to publicly commit to finding a solution to the current problem by January 8th, 2023, and to treat the $1.1 billion promissory note as an obligation to pay $1.1 billion.

3AC’s Zhu Su Blames FTX & DCG For Terra’s Fiasco

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Zhu Su, CEO of the defunct hedge fund Three Arrow Capital or 3AC, has taken to Twitter to pin blame on venture capital firm Digital Currency Group [DCG] and FTX for Terra’s fallout.

In the series of tweets, the co-founder of the Singapore-based firm alleged that DCG and FTX hatched an elaborate plan to attack Terra’s native token LUNA, and Lido’s stETH.

It is worthwhile to mention that Three Arrows was the first major crypto firm to go bankrupt in 2022, brought down by the collapse of cryptocurrencies Luna and TerraUSD in May. It filed for bankruptcy in the British Virgin Islands in late June 2022.

According to Zhu Su, DCG and FTX suffered severe losses during that time. With the collapse of Babel and other crypto firms involved in Grayscale’s GBTC, the losses went beyond 3AC.

For those new, DCG is the parent firm of Grayscale Investments and Genesis Trading. FTX’s recent crash triggered a major liquidity crisis for DCG’s crypto lending subsidiary Genesis Global.

According to the CEO, DCG could have supported the hapless firms in the restructuring process but instead chose to “fabricate a left pocket right pocket callable promissory note that magically filled the hole.”

“This is like a kid losing at poker and saying “I am fine, my dad will pay you, let me keep playing”, he tweeted.

“DCG’s Value Is Criminal Fraud”- 3AC Founder

Zhu Su also alleged that DCG and FTX had been attacking them for months and had taken advantage of 3AC’s fall to “misdirect” the crypto community.

They, like FTX, proceeded to misdirect for months, using various methods to attack us and also not have anyone ask the hard questions which is how did genesis fill the hole. they, like FTX, spent six months taking more deposits while insolvent and hoping mkt goes up.

The 3AC founder then likened DCG’s efforts to criminal fraud and criticized its CEO, Barry Silbert, for approving SBF his FTT-backed loan.

Further, the founder predicted that Genesis would likely be the next to file bankruptcy in the near future. “…they are likely demanding Barry pays back his cashouts the easy way instead of waiting for a DoJ criminal case with restitution punishments,” he stated.

“The damage from yield generator fund blow-ups could have been contained by client-facing firms doing proper restructurings that, while painful for equity holders, would’ve ensured continuity Instead, FTX and DCG committed umpteen frauds to risk client funds rather than dilute”, the 3AC founder concluded.

Genesis V.s DCG Bankruptcy: Creditors To Make A Difficult Choice

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On December 11th, the founder of the crypto research company Messari, Ryan Selkis, tweeted that Dragonfly Capital’s Managing Partner, Haseeb Qureshi, had made an unexpected remark on “the $1.1 billion DCG-Genesis promissory note.”

On the latest episode of Unchained’s “The Chopping Block,” Haseeb Qureshi talked about the potential repercussions of Genesis going out of business. He claims that in the case of a Genesis liquidation, the 10-year note may have been structured as “callable.”

Ryan stated in his Twitter thread that if true, despite the fact that the promissory note was designed to be paid off over ten years, the crypto lending company may have considered it a “current asset” with a shorter lifespan. If Genesis had shown creditors a list of current assets, that would have made up a significant portion of it.

According to the tweet’s comment section:

It would also do two other things: + significantly reduce DCG’s ability to limit liability from a Genesis bankruptcy. a callable promissory note would basically be a “you break it, you buy it” situation + reduce Genesis’s urgency to file bankruptcy as they “have the assets.”

In Ryan’s opinion, this would allow the company’s creditors to decide whether or not they want to take them into bankruptcy through a notice of default. Since it would be much easier legally to drag DCG into bankruptcy over a present asset than a 10-year note, the leverage would shift to its creditors.

In this case, it would be highly probable that DCG pursues a recapitalization versus bankruptcy proceedings for the lender company. If the promissory note is indeed callable, then DCG’s odds of success in bankruptcy court would plummet. He also pointed out that “the lengthy silence could be a sign Genesis creditors are giving DCG time to figure it out.”

$1.1 billion DCG-Genesis Promissory Note

Investors have been concerned about the contagion spreading to the whole crypto sector since FTX’s abrupt. Lenders have ceased making loans, withdrawals are more challenging and uncontrolled, and the value of a number of tokens has plummeted.

The chief executive of Digital Currency Group (DCG), Barry Silbert, revealed in a letter that his business owes its subsidiary Genesis Global, the crypto lender (halted withdrawals and new loans), a loan of $575 million and a promissory note of $1.1 billion.

According to the letter’s statement, after DCG took over the lending company’s exposure from the Three Arrows Capital default, the $1.1 billion promissory note was issued.

Separately, the roughly $575 million that DCG borrowed from it was used to finance business ventures and purchase shares of DCG from outside stockholders, as per Mr. Silbert’s letter. He claimed that the loans were market-rate, arm’s-length agreements.

He also discussed Genesis’ lending operations and noted that the November 16th suspension of redemptions and new loan originations was due to a liquidity and term mismatch in the loan book. 

Related Reading | Genesis Block A Front For Alameda Research – New Evidence