The war between Gemini and Digital Currency Group (DCG) may be entering the endgame, although no one is likely to emerge from this fight looking like a winner.
On Monday, Cameron Winklevoss—who runs Gemini in tandem with his twin brother Tyler—tweeted ‘An Open Letter to Barry Silbert,’ the DCG boss whose troubled Genesis Global Capital (GGC) offshoot filed for bankruptcy protection in January. At the time, several hundred thousand Gemini Earn users had over a billion dollars worth of digital assets stranded on Genesis thanks to the Winklevii’s ill-fated decision to lend them to Genesis in exchange for a higher ‘earn’ rate.
Ever since all parties involved in this debacle have been in fraught negotiations over the return (in whole or in part) of the over $3 billion owed to just the top 50 Genesis creditors. A deal appeared to have been reached in February but fell apart in April according to what DCG claimed were “all new demands” made by “a subset” of Genesis creditors. A court-appointed mediator has so far failed to resolve the matter, and DCG missed a scheduled contribution to the GGC bankruptcy estate in May.
The Cameron Winklevoss letter to Silbert pulls no punches, accusing the latter of having “fostered and architected a culture of lies and deceit,” including falsifying balance sheets “to perpetuate an accounting fraud.” Eight months after GGC originally halted customer withdrawals, Cameron claims to have realized that Silbert was “buying time so [he] can raise money and stiff creditors and Earn users again.”
Cameron proceeds to lay out his case v. Silbert, starting with the May 2022 collapse of the Three Arrows Capital (3AC) ‘crypto’ hedge fund. DCG “knowingly lied” about having “absorbed the $1.2 billion in losses” that GGC incurred from 3AC’s demise, instead using a “bogus long-dated promissory note” that gave DCG until 2032 to worry about honoring its debt to its struggling subsidiary.
Cameron called this a “fake it till you make it” strategy that was ultimately exposed when Sam Bankman-Fried (SBF) “committed an even bigger fraud that had the undesirable effect of exposing [Silbert’s] fraud.” SBF’s FTX digital asset exchange and its affiliated market-maker Alameda Research issued their own bankruptcy filings last November, stranding some $175 million that GGC had stored on FTX.
Cameron claims Silbert should have subsequently revised “the term and quantum of the fake promissory note.” Instead, Silbert pretended to “go through the motions of negotiating a deal in an effort to rope-a-dope creditors and position DCG to litigate the promissory note’s viability in court for many years to come.”
Cameron accused Silbert of using the settlement delays to avoid repaying the $630 million that DCG was supposed to deliver to GGC in May. Without delays, Cameron claims that Silbert understood that his failure to repay this loan “would result in a DCG default and bankruptcy filing” that would prevent DCG from litigating the even larger promissory note.
Cameron claims the mediation process “has given DCG an indefinite forbearance” on its $630 million repayment thanks to “multiple extensions” of the negotiations. Cameron claims these extended talks “have ballooned professional fees to over $100 million, all of which have gone to lawyers and advisors at the expense of creditors and Earn users.”
Gemini has made its “best and final offer” to resolve the dispute, and Cameron warns that Silbert’s failure to agree to these terms by 4 pm ET on July 6 will result in legal actions filed the following day against both DCG and Silbert personally.
Gemini will also (a) “demand” that the Genesis Special Committee declare DCG in default of its loan repayment, (b) “advance a non-consensual plan” for immediate distributions to creditors/Earn users, and (c) push the Unsecured Creditor Committee to file a lawsuit over “the various intercompany loans and transactions between DCG and Genesis entities.”
Cameron caps off his public poke in Silbert’s eye by rubbishing the latter’s belief—real or feigned—that he’s “a victim in all of this.” Cameron digs the knife deeper by saying, “Not even Sam Bankman-Friend [sic… or Freudian slip?] was capable of such delusion.” However, Cameron fumbles his finish by claiming that SBF had, in the end, “recognized how his actions had hurt others and attempted to make things right.” Um, no. Just so much no.
Now how much would you pay? Don’t answer yet!
The Winklevii’s “best and final offer” to DCG is an elaborate formula totaling some $1.465 billion in various assets Gemini expects to receive. This presumed payday starts with the aforementioned $630 million that DCG has failed to pay since early May.
The $630 million consists of a $275 million “forbearance payment” due by July 21 and consists of a mix of BTC tokens and U.S. dollars. This is followed by the first tranche of two Debt payments, with $355 million—a mix of 40% BTC, 40% USD, and 20% ETH—due within two years of the Plan Support Agreement (PSA) taking effect. The second tranche of $835 million will be paid out in a similar 40/40/20 mix within five years of the PSA taking effect.
There’s also a requirement for DCG to “absorb any payouts to the FTX and Alameda bankruptcy estates that exceed $300 million in the aggregate. The court-appointed FTX/Alameda debtors have sued GGC to claw back $3.9 billion in payments made to Genesis within the 90-day period preceding FTX’s bankruptcy. Alameda has also sued Silbert, DCG, and its Grayscale Investments subsidiary for mismanaging the billions of dollars worth of BTC and ETH tokens locked up in two futures-based token trusts.
As far as the 3AC bankruptcy process goes, all parties would reserve their respective rights, although DCG would be forced to ante up $100 million to the GCC bankruptcy estate if/when it receives its AVAX/NEAR tokens from 3AC’s still smoldering corpse.
The website DCG set up following the Genesis bankruptcy filing to update investors/creditors haven’t been updated in nearly two months. The last post says it remains “engaged with the various stakeholders” and “committed to reaching a fair outcome for all.”
While Cameron and his brother continue to pin all blame on DCG and the heartless/hapless Silbert, it bears mentioning that the twins are independently wealthy, having bought huge stacks of BTC back in the day. And yet, despite having played a pivotal role in the debacle currently afflicting Gemini Earn customers, the Winklevii have made little to no effort to reach into their own pockets to make their customers whole.
There’s also the unanswered question of why if they truly had DCG/Silbert so dead to rights, the Winklevii just didn’t file a lawsuit from the get-go. All this public bluster doesn’t really square with their utter lack of demonstrable action. Are they only tough guys behind their keyboards (or their keyboards, guitars, and microphones)? Or are they just that nervous about exposing their crypto operations to a legal discovery process?
Cameron smash!
While DCG and Gemini may be at each other’s throats, they are both currently engaged with a common enemy: the U.S. Securities and Exchange Commission (SEC), which filed civil charges against both companies in January for offering unregistered securities to the public.
The charges stem from the Gemini Earn lending program, which handed over the aforementioned billion-plus worth of Gemini customers’ digital assets to Genesis, which then began furiously pitching dice in the alley behind DCG in a bid to grow the pile.
Gemini and Genesis have filed to dismiss the SEC’s charges based on their shared belief that the allegedly unregistered securities were a simple loan agreement. The key issue is whether Gemini Earn customers were told that Genesis would revise the rate of interest it paid on their assets as Genesis management sought ever more ingenious methods of making number go up.
While pushing back in the courts, Cameron Winklevoss is also (surprise!) lambasting the SEC on social media. Last weekend, Cameron tweeted a copy of the application he and his brother filed 10 years ago for a spot-based BTC exchange-traded fund (ETF). Cameron noted the SEC’s refusal to date to approve any such ETFs.
The issue took on larger significance last month with the filing of a BTC spot-based ETF application by financial giant BlackRock Investments, which sparked a flurry of resubmissions by other entities whose applications previously met with SEC rejection.
Cameron claimed that the SEC’s rejection of these spot-traded applications had “pushed investors into toxic products” like Grayscale’s aforementioned GBTC trust, which for years has milked its investors for high management fees while denying them the ability to withdraw any of the 600,000+ BTC tokens currently locked up in GBTC.
Cameron also accused the SEC of similarly pushing investors into the arms of FTX and other “unlicensed and unregulated venues.” Cameron closed by pining for the day when “the SEC will reflect on its dismal record” and stop doing mean stuff that makes him and his brother cry.
This was too much for former SEC enforcement director John Reed Stark, who tweeted that Cameron’s arguments were akin to “Jim Jones blaming the U.S. Food and Drug Administration for depriving people of the right to drink cyanide-laced Kool-Aid.” Stark says whatever hope remains for Gemini Earn customers of being reunited with their assets is “thanks to, not despite, the SEC.”
Stark adds that the “very significant difference” between Gemini and FTX is that “Gemini is solvent.” Stark urged Gemini customers not to “fall victim to Gemini’s incessant posturing,” noting that an SEC victory in its “very strong case” against the “cash-rich” Gemini would be “good news, not bad news. Full Stop.”
Careful what you wish for
There are all sorts of doomsday scenarios at play here, not just for Gemini/Genesis creditors, but the entire BTC-based crypto economy. If Gemini were to force DCG into default, the next logical step would be the breakup of DGC’s cash cow GBTC, unleashing over 600,000 BTC tokens onto the market.
Consider that most of these 600,000 BTC belong to people/entities who’ve desperately wanted to sell their tokens for years but have been forbidden from doing so. The delicate dance of supply and demand would be seriously upended, and even the insatiable Michael Saylor wouldn’t be capable of absorbing the resulting liquidity tsunami.
That could also upend BlackRock’s highly anticipated ETF plans, assuming the SEC has overcome (a) its reluctance to okay any market in which manipulation is so rampant on major exchanges like Binance, or (b) its reluctance to approve the Coinbase (NASDAQ: COIN) exchange as BlackRock’s ‘surveillance partner.’
Or not. We have it on reliable authority from Crypto Twitter that all news is good for crypto. Does Fed hike interest rates? Good for crypto. Does Fed slash interest rates? Good for crypto. Coinbase, Binance sued by SEC? Good for crypto. Crypto friendly RFK Jr. going shirtless on Twitter? Good for crypto. WGMI. HFSP. GTFO.
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