Frozen Out of Funds, Gemini Earn Clients Accuse Genesis of 'Concealing Its Insolvency'
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Frozen Out of Funds, Gemini Earn Clients Accuse Genesis of 'Concealing Its Insolvency'

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8 months ago

The arbitration request comes a day after the Gemini exchange's president and co-founder, Cameron Winklevoss, released a furious letter to the Digital Currency Group president Barry Silbert.

Frozen Out of Funds, Gemini Earn Clients Accuse Genesis of 'Concealing Its Insolvency'

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A trio of Gemini Earn clients seeking to unlock their frozen assets have filed a class action arbitration request against crypto lender Genesis, alleging that it has "concealed its insolvency" since this summer.

Facing a spike in withdrawals that caused a liquidity crisis, Genesis halted withdrawals on Nov. 16, leaving the $900 million it owed to 340,000 Gemini Earn clients in limbo.
Gemini Earn offered clients of the Gemini exchange up to 8% interest, sending funds to Genesis to do the actual lending. Unfortunately, Genesis loaned some $2.3 billion to crypto hedge fund Three Arrows Capital (3AC), which failed spectacularly in June. That bankrupted several crypto lenders, including Voyager Digital and BlockFi.
The class action claims that Genesis Global Capital hid its own financial problems via a "sham transaction" in which it sold parent company Digital Currency Group (DCG) the effectively uncollectable 3AC debt for a $1.1 billion promissory note due in a decade. That breached its agreement with Gemini Earn clients, the action states, and requires the return of their funds.
The arbitration request comes a day after the Gemini exchange's president and co-founder, Cameron Winklevoss, released a furious open letter accusing DCG president Barry Silbert of "bad faith stall tactics" in failing to return $900 million owed to 340,000 Gemini Earn clients. In it, he strongly implied that Gemini would sue Genesis and DCG if talks about a plan to repay customers didn't begin by Jan. 8.

While Genesis' losses came primarily from 3AC's bankruptcy, the liquidity crunch that caused it to halt withdrawals came to a head after the failure of Sam Bankman-Fried's FTX exchange created an industry-wide upheaval.

Unregistered Securities

Beyond the breach-of-contract allegations, the class action arbitration filing accuses Genesis of illegally selling unregistered securities in the form of the interest-bearing Gemini Earn accounts. On Dec. 27, another group of Gemini Earn clients sued the Winklevoss-owned exchange, alleging fraud and securities law violations for the same reasons.

The Securities and Exchange Commission (SEC) has long held that interest-bearing crypto earn accounts are securities that must be registered with the agency. In February, it announced that BlockFi had settled a lawsuit by the SEC and several dozen state securities regulators over the issue for $100 million.
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