Winklevoss v Silbert Continues: Gemini Twin Teams Up With the SEC Against SCG Boss
- US authorities investigate a dispute between crypto billionaires Winklevoss and Silbert.
- This is part of a broader inquiry into Silbert’s Digital Currency Group (DCG).
- Winklevoss alleges fraud by DCG and Silbert, prompting the investigation despite denials.
- Winklevoss met SEC, prosecutors, and the FBI to discuss the allegations, with a focus on Barry Silbert’s actions.
- The investigation reflects ongoing regulatory scrutiny in the cryptocurrency market.
US investigators who were already looking into the finances of one of the most well-known empires in the business have become interested in a nasty fight between cryptocurrency billionaires, Cameron Winklevoss and Barry Silbert.
Winklevoss, Gemini Trust Co.’s co-founder, has been accusing Digital Currency Group Inc. and CEO Barry Silbert of fraud for months. Federal officials are examining these claims despite denials as part of an ongoing investigation into DCG’s internal financial transactions, including its Genesis Global Capital subsidiary.
Winklevoss has reportedly met with federal authorities, including the SEC, Brooklyn prosecutors, and the FBI, to discuss his allegations. Sources , requesting anonymity due to the confidential nature of the investigation, mention that the U.S. Attorney’s Office for the Eastern District of New York inquired about Silbert’s conduct.
Silbert forwarded a query to a DCG spokesperson, even though he hasn’t faced any allegations of wrongdoing. The spokesperson, who also hasn’t been accused by authorities, declined to provide additional comments. The company has previously asserted that it conducts its operations legally and ethically.
US attorneys’, FBI’s, and SEC’s investigations don’t necessarily result in charges or enforcement actions. All three were adamantly silent. Requests for response from Winklevoss went unanswered, and his lawyer also declined to comment.
The growing US scrutiny demonstrates how the turmoil in the cryptocurrency market last year has continued to cast a shadow over some of the most promising parts of the sector.
Genesis and Gemini Face SEC Lawsuit Over Earn Program
Genesis Winklevoss’s Gemini and Global Capital, a now bankrupt subsidiary of DCG that provided cryptocurrency loans, worked together on a project called Gemini Earn . It allowed Gemini customers to earn up to 8% interest on their holdings of digital assets.
Up to the failure of cryptocurrency investment fund Three Arrows Capital in the middle of 2022, which left a hole in Genesis’s balance sheet, the arrangement was profitable for both businesses. The fall of FTX in November further shocked the sector.
Genesis suspended withdrawals in late 2022 in response to an increase of requests, and in January filed into bankruptcy . The SEC had sued Gemini and Genesis earlier in the month on the grounds that they had advertised unregistered securities through the Earn program. Genesis and Gemini, which was founded by Cameron Winklevoss and his twin brother Tyler, are fighting the case.
Misleading Creditors Allegations
Amid Genesis’s liquidity crisis, Winklevoss alleged that DCG and Silbert misled creditors, Earn customers, and Gemini. He claimed that DCG falsely implied it had covered Genesis’s losses by using a “bogus long-dated promissory note,” as stated in a July open letter posted on X (formerly Twitter).
US law enforcement is focusing on the $1.1 billion promissory note issued by DCG to Genesis after the Three Arrows incident, as well as Silbert’s disclosures to investors and others, according to sources familiar with the investigation. Federal prosecutors and regulators have interviewed former and current Genesis executives, including former CEO Michael Moro. Moro’s attorney declined to comment.
New York Attorney General Letitia James’s office has also sought interviews with former and current Genesis executives in recent months as part of its own investigation into DCG.
DCG has said it “fully intends to address its obligations to Genesis Capital.” The promissory note is due in 2032.
In addition to Genesis, DCG controls digital-asset manager Grayscale Investments, which helms a multibillion-dollar Bitcoin trust. Grayscale last month scored a key legal victory in its push to launch a spot Bitcoin exchange-traded fund.
The tension between Winklevoss and Silbert has been on display during the bankruptcy proceedings for Genesis, which is trying to work out a restructuring deal to pay back the debts it owes to creditors.
Gemini has refused to get on board with a tentative agreement that would give unsecured creditors a recovery of as much as 90%, according to court papers. Winklevoss’s firm said in a court filing last week that the proposed deal “is woefully light on specifics and remains subject to definitive documentation.”
Gemini Sues DCG Amid Restructuring Conflict
Gemini, a cryptocurrency trust business, has filed a lawsuit against industry giant Digital Currency Group (DCG). The lawsuit alleges that DCG’s founder, Barry Silbert, committed “fraud” through Genesis, a DCG subsidiary responsible for handling cash related to Gemini’s Earn program.
A filing submitted to the New York County Supreme Court stated that the case is meant to recoup Gemini’s assets from DCG. Gemini and Genesis collaborated to provide its clients a potential annual percentage yield of up to 7.4%.
Genesis received monies from Gemini’s consumers and loaned them to organizations like the now-defunct Three Arrows Capital. CoinDesk is a DCG subsidiary, just like Genesis.
“From the beginning, Genesis – acting in concert with Defendants and with Defendants’ active support and encouragement – induced the Gemini Earn Lenders to lend by touting Genesis’s purportedly robust risk-management practices and a supposedly thorough vetting process of the counterparties to which it re-lent the assets. Those were lies,” the filing stated.
The lawsuit asserts that Silbert, despite being aware of Genesis’s significant insolvency, went to great lengths to hide the fact that it had a billion-dollar deficit on its financial statements. Silbert even requested that Gemini persist with its Earn program. Genesis eventually filed for bankruptcy in January 2023.
The petition criticized DCG’s declaration that it had absorbed the losses from Three Arrows Capital, calling it “false.”
Genesis Didn’t Comply With Redemption Requests
Additionally, the complaint stated that since mid-November, Genesis had not complied with redemption requests.
The co-founder of Gemini, Cameron Winklevoss, referred to Silbert in a tweet as “the architect and mastermind of the DCG and Genesis fraud against creditors.” Winklevoss had earlier invited Silbert to join him on a Twitter Space without attorneys.
The action seeks damages, attorney’s costs, and “any other relief that is deemed just and proper.” It makes allegations of fraud and aiding and abetting fraud.
In its own tweet , DCG referred to the charges as “defamatory” and referred to the lawsuit as a “publicity stunt.”
