A pair of crypto firms including a struggling exchange owned by the Winklevoss twins allegedly bilked investors out of $1.1 billion because the digital currency market tanked last yr, in line with a bombshell lawsuit filed Thursday by Recent York’s attorney general.
The twins’ Recent York-based crypto exchange Gemini, together with billionaire Barry Silbert’s firm Digital Currency Group and its subsidiary, the now-bankrupt crypto bank Genesis Capital, stand accused of defrauding greater than 230,000 customers, including at the least 29,000 Recent Yorkers.
The criticism was unveiled weeks after The Post reported Cameron and Tyler Winklevoss secretly pulled $282 million in cryptocurrency from Genesis on Aug. 9, 2022. Just a few months afterward Nov. 16, Genesis had frozen withdrawals on some $900 million in customer assets after the bank was caught up in the meltdown of Sam Bankman-Fried’s FTX empire.
“This fraud is one more example of bad actors causing harm throughout the under-regulated cryptocurrency industry,” Recent York AG Letitia James said in an announcement. “My office will proceed our efforts to stop deceptive cryptocurrency firms and push for stronger regulations to guard all investors.”
The firms face scrutiny over the now-defunct Gemini Earn program, an interest-bearing account product that teased customers with as much as 8% interest on their crypto deposits. Genesis served as the only real banking partner of Gemini Earn.
Gemini never responded to The Post’s request for comment on the withdrawal, but later acknowledged it had occurred. The corporate claimed it withdrew “Earn users’ money” to create a “liquidity reserve” for them under this system’s terms of service as a part of a “sensible and prudent” risk management strategy.
The reason infuriated some Earn customers and claimant attorneys who spoke to The Post and questioned why Gemini never halted this system or informed clients that anything was amiss despite its apparent misgivings.
The withdrawal also raised questions on what the twins knew about Genesis’ financial stability and when in the months before its collapse – a central theme in the Recent York attorney general’s lawsuit, which alleged that Gemini repeatedly assured investors the Earn program was a secure investment though its own internal analyses of Genesis showed it was a high-risk lender.
Victims of the Gemini Earn meltdown included a 73-year-old grandmother in Recent York who “invested her and her husband’s lifesavings of over $199,000 in Gemini Earn because they believed Gemini’s marketing statements that it was a secure and secure selection,” in line with the state’s lawsuit. The cash was intended to pay for her grandchild’s education.
“Are you going to have the option to provide us our money any time soon? I’m crying all day. I’m 73 years old and without that cash I’m doomed,” the unnamed grandmother said in a Nov. 29 message to Gemini, in line with the criticism.
The lawsuit also claims that Gemini risk management personnel pulled their personal investments out of the Earn program before its collapse. Gemini’s chief operating officer, who shouldn’t be named in the suit, allegedly withdrew his entire investment of greater than $100,000 from Earn on June 16 and 17 of last yr. The corporate’s COO on the time, Noah Perlman, departed from the role in January.
In an announcement, Gemini tried to spin the most recent lawsuit in its favor – claiming it “confirms what we’ve been saying all along — that Gemini, Earn users, and other creditors were the victims of an enormous fraud and systematically ‘lied to’ by these parties about ‘Genesis’s financial condition.’”
“With that said, we wholly disagree with the NY AG’s decision to also sue Gemini,” the corporate said. “Blaming a victim for being defrauded and lied to is mindless and we look ahead to defending ourselves against this inconsistent position.”
Gemini’s statement drew a harsh response from some X users.
“You’re acting like CHILDREN,” one X account called “Crypto Watchdog” wrote. “Newsflash: that is YOUR FAULT, TOO!”
Gemini didn’t disclose its concerns to the general public – including that almost 60% of Genesis’s loans were at one point tied to Alameda Research, the freewheeling crypto hedge fund whose dangerous bets led to FTX’s meltdown, the criticism alleges.
Gemini allegedly downgraded its own estimate of Genesis credit standing to a junk grade in February 2022, but continued marketing this system as a low-risk investment up until its collapse that November.
In July 2022, a Gemini board member allegedly compared the state of Genesis Capital to that of infamous investing banking firm Lehman Brothers before its collapse in the course of the Great Recession, the suit said.
Individually, Genesis and DCG are accused of attempting to hide $1.1 billion in losses from customers in the months before the Earn program failed. Silbert, DCG and Genesis are also alleged to have misled each Gemini and the general public about Genesis’ financial health.
James is searching for restitution payments for investors and disgorgement of any ill-gotten gains. Moreover, Gemini, Genesis and DCG face a ban from participating in the financial investment industry in Recent York.
Silbert said in an announcement that he was “shocked by the baseless allegations in the Attorney General’s criticism and intend to fight these claims in court.”
DCG said it “fully intend(s) to fight the claims and look ahead to being vindicated in this case.”
“DCG has at all times conducted its business lawfully and with integrity,” a DCG spokesperson said. “We’ve actively cooperated for months with the Attorney General’s investigation in an open and transparent manner. We were blindsided by the filing of the criticism, and there is no such thing as a evidence of any wrongdoing by DCG, Barry Silbert, or its employees.”
The lawsuit is just the most recent legal headache facing the Winklevoss twins. In January, the SEC sued Gemini and Genesis for allegedly offering “unregistered securities to the general public, bypassing disclosure requirements designed to guard investors.”
The Winklevoss twins and Silbert are also locked in a nasty public legal battle with one another.
The brothers — who became crypto kingpins after gaining notoriety for his or her legal war over Facebook with former Harvard classmate Mark Zuckerberg — sued Silbert and DCG in July, alleging that they got a “false, misleading, and incomplete representation” of Genesis’s financial health. DCG later filed a motion to dismiss the suit, which continues to be pending.
The Recent York AG’s lawsuit was announced whilst Bankman-Fried faces trial on federal charges for allegedly misappropriating billions of dollars in FTX customers funds to cover dangerous bets at Alameda.
Bankman-Fried’s ex-girlfriend Caroline Ellison, the previous CEO of Alameda, was a star witness for the prosecution. Bankman-Fried has pleaded not guilty.