Accusing Genesis parent DCG's Barry Silbert of using "bad faith stall tactics" on releasing funds belonging to 340,000 customers, Winklevoss warns "time is running out."
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An increasingly angry Gemini exchange co-founder Cameron Winklevoss squared off against the man behind the now frozen crypto lending platform that has trapped $900 million of Gemini Earn customers' money in a limbo.
In an open letter tweeted out on Jan. 2, Winklevoss accused Barry Silbert, CEO of Digital Currency Group (DCG) and lender Genesis Global Capital, of "engaging in bad faith stall tactics."
Cameron Winklevoss and his twin brother Tyler are seeing the goodwill the highly regulated exchange has built up over nine years evaporate as 340,000 customers wait to learn if their savings are gone for good.
Gemini Earn offered customers up to 8% interest to park their funds in a crypto lending program that was being sent on to Silbert's Genesis to do the actual loan origination.
While that rate was substantially less than the too-good-to-be-true 20% or more other crypto lenders were promising — which led many, like Celsius, Voyager Digital and BlockFi into highly risky investments and eventually bankruptcy — it was still aggressive.
And when Sam Bankman-Fried's FTX exchange went belly up in November, Genesis said its exposure was $175 million. This led to a spike in withdrawals and liquidity crunch, followed by a freeze in withdrawals and new loans.
That's where Winklevoss gets accusatory, saying that the real problem is that DCG borrowed about $1.675 billion from Genesis — which is a wholly owned subsidiary of DCG. The biggest business in DCG's portfolio is its Grayscale Trusts, most notably the Grayscale Bitcoin Trust, which buys and holds Bitcoin and issues shares based on that value. But DCG also absorbed the $1.1 billion Genesis was owed by bankrupt hedge fund Three Arrows Capital.
Risky Business
Saying "this mess is entirely of your own making," Winklevoss added:
"You took this money — the money of schoolteachers — to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades that ballooned the fee-generating AUM of your Trust, all at the expense of creditors and all for your own personal gain."
Silbert shot back that "DCG did not borrow $1.675 billion from Genesis, has never missed an interest payment to Genesis and is current on all loans outstanding," adding that DCG sent over a repayment proposal on Dec. 29 and has not heard from Gemini.
Which Winklevoss called "completely disingenuous" while telling Silbert:
"Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess."
Last Chance
Gemini's customers ran out of patience on Dec. 27, with a class action suit alleging fraud and securities law violations on Gemini's part.
It argues that the Gemini Earn accounts were actually unregistered securities — an interpretation the Securities and Exchange Commission has been pushing aggressively for more than a year — that did not have the disclosures to let customers better assess the risk they were taking.
After sending over two proposals for a repayment plan while trying to convince Silbert and DCG "to get into a room with us to hash out a resolution," Winklevoss said:
"You continue to refuse to agree to a timeline with key milestones. Every time we ask you for tangible engagement, you hide behind lawyers, investment bankers, and process. After six weeks, your behavior is not only completely unacceptable, it is unconscionable."
And, Winklevoss said, Gemini's patience is wearing out as well. While not actually mentioning the the word lawsuit, he did draw a line in the sand, telling Silbert:
"For the final time, we are asking you to publicly commit to working together to solve this problem by January 8th, 2023. We remain ready and willing to work with you, but time is running out."
Winklevoss also hinted at another potential line of attack, accusing Silbert of "working desperately to try and firewall DCG" from the problems at Genesis.
Using a term that Bankman-Fried's alleged theft of FTX customer funds to pay for Alameda's trading losses had made particularly explosive, Winklevoss added:
"You should dispense with this fiction because we all know what you know — that DCG and Genesis are beyond commingled. Everyone takes orders from you and always has. And anything you have done after the fact to pretend otherwise, won't hold up."
Picture courtesy of Noam Galai/Getty Images for TechCrunch.
