The lawsuit represents a significant step in Gemini's ongoing efforts to reclaim funds for its Earn program, which are currently held by Genesis, a subsidiary of DCG.
Earlier this Friday, Gemini, a crypto trust firm, filed a lawsuit against Digital Currency Group (DCG) citing allegations of fraud. The lawsuit specifically targets DCG subsidiary Genesis, which held funds for Gemini's Earn program. The objective of the lawsuit is to recover the funds that Gemini entrusted to DCG.
According to the filing made to the New York County Supreme Court, Gemini had established a partnership with Genesis, enabling its customers to earn an annual percentage yield of up to 7.4%. As part of the arrangement, Gemini transferred its customers' funds to Genesis, which then loaned them to various entities, including Three Arrows Capital, a now-defunct company. Notably, CoinDesk, a subsidiary of DCG, shares the same parent company as Genesis.
The lawsuit alleges that Genesis, in collaboration with the defendants, deceived Gemini Earn Lenders by falsely promoting robust risk management practices and a thorough vetting process of counterparties. The filing contends that these claims were deceitful and aimed at inducing lending.
Furthermore, the lawsuit accuses Barry Silbert of urging Gemini to continue its Earn program despite being aware of Genesis's significant insolvency issues. The filing asserts that Silbert took deliberate actions to conceal Genesis's billion-dollar deficit on its balance sheet. In January 2023, Genesis ultimately filed for bankruptcy.
The legal document also challenges Digital Currency Group's announcement of absorbing the losses of Three Arrows Capital, deeming it false. Additionally, the filing claims that Genesis has failed to honor redemption requests since mid-November.
In Tweet, Cameron Winklevoss, the co-founder of Gemini, directly accused Barry Silbert of being the "architect and mastermind" behind the alleged fraud committed by DCG and Genesis against their creditors:
By alleging fraud and aiding and abetting fraud, Gemini aims to hold DCG and Genesis accountable for their alleged actions and seeks appropriate compensation for the damages incurred, including damages, attorney's fees, and any other appropriate remedies deemed just and proper by the court.
DCG responded to the allegations in a tweet of their own, dismissing them as "defamatory" and referring to the lawsuit as a "publicity stunt." According to DCG's tweet, senior leadership has been engaged in extensive negotiations with the Official Unsecured Creditors Committee and Ad Hoc Committee for several months, while Gemini's leadership has been either absent or limited to issuing press statements.
Winklevoss's statement suggests a strong belief in Silbert's involvement and highlights the seriousness of the allegations, against DCG, Genesis, and Barry Silbert, alleging fraud and deceptive practices. It’s also worth noting that both Gemini and Genesis are also facing a separate lawsuit filed by the U.S. Securities and Exchange Commission (SEC) regarding the Gemini Earn product. The SEC lawsuit, filed in January, alleges that Gemini Earn constituted an unregistered securities offering and further adds to the complexity of the situation for both companies.
This high-profile case is one of the many legal battles cases currently taking place across the crypto industry, emphasizing the evolving nature of the legal landscape and highlighting the need for transparency and accountability within the industry. As it all unfolds, the outcome will likely have implications for the broader cryptocurrency industry, shaping the legal framework and expectations surrounding custody, trust, and the handling of customer funds. It serves as a reminder of the importance of thorough due diligence and adherence to regulatory standards within the digital asset space.