Gemini’s Winklevoss Claims Fraud, Calls for Removal of DCG Chief

Cryptocurrency exchange Gemini co-founder Cameron Winklevoss claimed “more than 340,000 Earn users have been defrauded by Genesis” and called for the removal of the chief executive of Genesis’s parent company, Digital Currency Group (DCG) Inc., amid the ongoing tussle between crypto firms that have emerged after the FTX collapse.

FTX Collpase is to be Blamed

Gemini’s Earn product allows its customers to generate yields by lending their crypto assets to a borrowing counterparty. The FTX fallout created financial troubles for Genesis in November, as it had around $175 million in funds locked up with FTX.

It suspended redemptions and new loans due to the collapse of FTX, and following the news, crypto exchange Gemini, founded by the Winklevoss twins, announced delays in withdrawals from its Earn product, in which Genesis is a lending partner.

The FTX contagion continued to spread through the market, and now Genesis is on the brink of collapse, heading toward bankruptcy. The situation is certainly not good for Gemini since Genesis owes its customers more than $900 million.

Silbert Called ‘Unfit’ to Run DCG

After receiving no concrete assurance, the Winklevoss twins slammed Genesis’ parent company, Digital Currency Group.

“There is no path forward as long as Barry Silbert remains CEO of DCG,” Winklevoss wrote in the open letter. “He has proven himself unfit to run DCG and unwilling and unable to find a resolution with creditors that is both fair and reasonable.”

He claimed DCG failed to repay Gemini, making Gemini unable to repay its customers. The letter from Winklevoss said Silbert had one week to repay Gemini holders before matters escalated.

Silbert said that DCG had delivered a proposal to Genesis and advisers for Winklevoss on Dec. 29, 2022, but didn’t receive a reply. He added, “DCG has never missed an interest payment to Genesis and is current on all loans outstanding.”

DCG Under Scrutiny

Since FTX collapsed in November 2022, DCG and some of its subsidiaries have come under increased scrutiny. Genesis Global Trading halted withdrawals on Nov. 10 after a public disclosure revealed Genesis had $175 million locked up in a frozen FTX trading account.

Prosecutors are investigating transfers between DCG and an embattled subsidiary that offers crypto lending services. They are also looking into what investors were told about those transactions. As of publication time, none has been accused of wrongdoing.

The Bottom Line

Due to the collapse of Three Arrows Capital last year, Genesis sustained heavy losses. FTX’s sudden and spectacular failure in November intensified the financial pressure even further. Genesis Global Capital, Genesis’ lending subsidiary, was hit particularly hard and stopped customers from withdrawing and obtaining new loans. An individual familiar with the criminal probe said Silbert’s empire was under investigation prior to FTX’s collapse.

DCG owns crypto-mining service provider Foundry Digital, London-based exchange Luno, and the crypto news outlet CoinDesk. CoinDesk was the first to report on the financial struggles of FTX.