Cryptocurrency giant Digital Currency Group (DCG), owner of CoinDesk, Genesis brokerage and the world’s largest digital asset manager Grayscale, among others, used fraud to hide from the public that Genesis became insolvent in mid-2022.
The accusation was brought in court by three clients of the North American Gemini exchange, which was founded by brothers Cameron and Tyler Winklevoss, who are best known for being the first investors in Facebook and later becoming billionaires with Bitcoin (BTC).
Cameron Winklevoss and DCG CEO Barry Silbert shared a Twitter thread on Monday (2) accusing the exchange’s CEO Silbert of engaging in “bad faith tactics” to try to restart withdrawals on the exchange. Genesis, which has been suspended since November 16.
According to Winklevoss, the action was responsible for making Gemini also suspend withdrawals from its “Earn” crypto savings, which were offered in partnership with Genesis.
The CEO says Genesis and DCG owe Gemini and its customers $900 million. He gave Silbert until January 8 to publicly commit to resolving this issue.
Faced with the CEO’s allegations, three Gemini digital savings users have filed a lawsuit against Genesis Global Capital and its parent company, Digital Currency Group.
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What the authors claim
Exchange clients have filed an arbitration claim, which is often seen as an alternative to a class action. The arbitration process, under US law, is generally voluntary and less formal.
However, the arbitrator’s decision is binding and cannot be appealed, making the process faster and less expensive than a class action.
In the lawsuit, the plaintiffs allege that Genesis failed to return digital assets to users of the Gemini Earn product, and that Genesis breached its terms when it became insolvent in mid-2022, but concealed the truth from its customers.
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They allege that Genesis engaged in a fraudulent deal with its parent company, DCG, to hide its bankruptcy, obtaining a $1.1 billion promissory note due in 2033 against $2.3 billion in debt. hedge fund Three Arrows Capital, which went bankrupt in mid-2022.
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The investor group also alleges that Genesis makes unrecorded sales of securities and is therefore seeking to terminate the sales contracts and obtain damages.
However, Gemini is also the target of a similar lawsuit. In late December, two investors filed a lawsuit alleging that the exchange engaged in trading in unregistered securities through a cryptocurrency savings scheme.
“When Genesis experienced financial difficulties as a result of a series of cryptocurrency market crashes in 2022, including FTX, Genesis was unable to repay crypto assets borrowed from Gemini Earn investors,” the complaint states.
“[A Gemini] He refused to honor any further redemptions, effectively eliminating all investors who still had stakes in the program, including the claimants.”