Gemini, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, has filed a lawsuit against Digital Currency Group (DCG) and its founder Barry Silbert in a New York court on July 7.
The company is seeking to recover the damages and losses incurred due to DCG’s and Silbert’s alleged “false, misleading, and incomplete” representations and “omissions” to Gemini, which “encouraged and facilitated” Genesis’s fraud against the firm.
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Per the filing made by Gemini, hundreds of thousands of users provided loans to Genesis under the Gemini Earn Program, and Genesis obtained these loans to lend the assets to other counterparties in the market.
Furthermore, Genesis allegedly charged those counterparties higher rates than it paid to its depositors, allowing Genesis to earn the difference as profit. However, the complaint alleges that Genesis was “recklessly” lending huge amounts to a counterparty that DCG and Silbert allegedly knew was using these huge amounts to fuel a “risky arbitrage trading strategy.”
1/ Today, @Gemini filed a lawsuit against @DCGco and @BarrySilbert personally in New York court. Barry was not only the architect and mastermind of the DCG and Genesis fraud against creditors, he was directly and personally involved in perpetrating it.
— Cameron Winklevoss (@cameron) July 7, 2023
According to Cameron Winklevoss, Silbert, and DCG were involved in creating a false financial report that hid the fact that Genesis, a DCG subsidiary that operated an interest-earning program called Earn, was insolvent.
Winklevoss claimed that DCG had absorbed losses caused by the collapse of Three Arrows Capital, a major investor in Genesis when DCG had only issued a sham 10-year promissory note with a 1% interest rate.
Furthermore, the company and its founders claim that Silbert and DCG conspired with Genesis to create false financial reports that concealed the true state of the company’s finances. The exchange alleges that Silbert knew that Genesis was insolvent but tried to induce Gemini to continue using the Earn program.
According to the complaint, Silbert knew that Genesis was massively insolvent but did not disclose that fact to Gemini, representing that Genesis faced only a short-term mismatch in the timing of its loan portfolio. In direct reliance on Silbert’s misrepresentations, Gemini elected to delay the termination of the Gemini Earn Program.
Then, the company founded by the Winklevoss twins terminated the Gemini Earn Program. Still, Silbert allegedly contacted one of Gemini’s founders to arrange a face-to-face lunch meeting, urging the company to continue the program.
The lawsuit also accuses Mark Murphy, the current president of DCG and its former COO, of being aware of the fraudulent scheme and of “lying” to creditors about DCG’s financial support for Genesis.
In its statement on Twitter, Cameron Winklevoss concluded:
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. DCG – and Barry personally – are direct participants in the fraud that has damaged Gemini and hundreds of thousands of Earn users. This complaint is an important step in holding them accountable for what they have done.
Gemini seeks to recover the damages and losses incurred due to DCG’s and Silbert’s alleged fraudulent scheme. The lawsuit highlights the importance of transparency in the cryptocurrency market and the need for proper risk management practices.
Featured image from Unsplash, chart from TradingView.com