April 19, 2024
Policy & Regulation

Gemini Sues DCG and CEO Barry Silbert Alleging ‘Fraud Against Creditors’

American cryptocurrency exchange Gemini has taken legal action against Digital Currency Group (DCG) and its CEO, Barry Silbert, accusing them of committing “fraud against creditors.”

In a filing made July 7 in a New York court, Gemini claimed that DCG and Silbert were involved in a fraudulent scheme where they provided substantial amounts of cryptocurrency and US dollars to Genesis, a subsidiary of DCG. Gemini seeks to recover funds it incurred as a result of the false, misleading, and incomplete representations made by DCG and Silbert, as well as their role in facilitating Genesis’ fraudulent activities. The company also stated its intention to pursue legal avenues in Genesis’ bankruptcy case.

Genesis, responsible for operating an Earn program in partnership with Gemini since 2021, was a crypto lender. The program allowed Gemini users to lend their crypto to Genesis with the promise of repayment with interest. However, in November 2022, Genesis halted withdrawals citing “unprecedented market turmoil,” and subsequently filed for Chapter 11 bankruptcy.

Gemini co-founder Cameron Winklevoss took to Twitter on July 7, claiming that Silbert was aware of Genesis’ insolvency when attempting to continue the Earn program. The complaint further alleged false financial reporting by DCG and Silbert, starting with the collapse of Three Arrows Capital in June 2022, which caused a significant financial loss for Genesis. Winklevoss asserted that Genesis and DCG owed $900 million to Gemini’s clients.

Winklevoss accused Silbert, DCG, and Genesis of colluding to create false financial reports to deceive Gemini and creditors. He claimed that the fraud went up to the highest levels, with Silbert and other DCG executives actively involved in concealing the truth from Gemini and other creditors.

Winklevoss had previously threatened to sue DCG and Silbert due to delays in resolving the issues between Gemini and Genesis. In his most recent move, he issued an open letter to Silbert proposing a “best and final offer” of $1.47 billion to be paid by 2028. DCG responded on July 7 via Twitter, dismissing the lawsuit as a “publicity stunt” by Winklevoss and stating that the claims of wrongdoing were baseless, defamatory, and entirely false.

As a result of the fallout from the Earn program, both Genesis and Gemini faced scrutiny from federal and state regulators. In January, the US Securities and Exchange Commission filed a lawsuit against both firms for allegedly offering unregistered securities. Additionally, the New York Department of Financial Services reportedly launched an investigation into Gemini regarding claims related to its Earn program.

Image by Freepik

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