Gemini Lawsuit Accuses Barry Silbert and Digital Currency Group of Fraud

After threatening to do so for months, Gemini Trust Company accused Digital Currency Group (DCG) and its CEO Barry Silbert of fraud in a lawsuit filed Friday.

In the complaint, the New York-based crypto exchange accuses DCG—parent company of bankrupt digital asset firm Genesis—and its founder of making “false, misleading, and incomplete representations and omissions to Gemini.”

Gemini and Genesis have been locked in a public battle over Gemini Earn, a program that allowed users to receive between 0.45% and 8% interest in exchange for depositing their crypto assets. Genesis was the primary partner for the service.

2/ The complaint tells the whole story, but let’s start here: when Gemini notified Genesis it would be terminating the Earn program in October 2022, Barry reached out to set up a meeting to induce Gemini to continue Earn. He did this knowing Genesis was massively insolvent. pic.twitter.com/cY8H8IfnaH

— Cameron Winklevoss (@cameron) July 7, 2023

Gemini said it was lead to believe that its Earn customers’ funds were being lent out by Genesis in a way that minimized risk while generating a return on their deposits.

“Those were lies,” Gemini wrote in its lawsuit. “As it turned out, Genesis was recklessly lending huge amounts to a counterparty that Defendants knew was using these huge amounts to fuel a risky arbitrage trading strategy.”

DCG did not immediately respond to a request for comment from Decrypt.

DCG, which owns Genesis and the crypto asset manager Grayscale, is a behemoth in the crypto industry.

During the heyday of late 2021, when the global crypto market cap was at an all-time high of $3 trillion, DCG had an estimated $50 billion in assets under management. But by the end of last year, the company wrote in a fourth quarter report to investors that it had $5 billion on its balance sheet.

DCG-owned Genesis halted withdrawals in November 2022, leading users and the Gemini founder to threaten legal action against the company. Over the intervening months, a public spat played out. Cameron and Tyler Winklevoss—the founders of Gemini—demanded that Genesis offer a plan for repaying the $900 million loan Gemini made to the now-bankrupt Genesis Global.

Silbert and DCG asked for more time in January. Then, in February, there appeared to be an agreement between the firms for repayment. But by late May, things had already soured: Genesis missed a $630 million loan payment.

Gemini made a final offer to restructure Genesis’s debt in order to avoid a lawsuit earlier this week and published an open letter—one of several—alleging that Silbert engaged in “fraudulent behavior.”

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Source: https://decrypt.co/147656/gemini-lawsuit-accuses-barry-silbert-digital-currency-group-fraud