FTX's bankruptcy filing has reverberated again through the crypto space, and in a big way.
Cameron Winklevoss, co-founder of the Gemini cryptocurrency exchange, has accused billionaire Barry Silbert of accounting fraud.
Silbert founded a crypto empire consisting of Digital Currency Group, which controls Grayscale Investments, a digital-asset-management company that runs a bitcoin trust.
DCG is also the parent of Foundry Digital, a crypto-mining-services provider, and Luno, a London cryptocurrency exchange.
In addition, the firm owns the crypto news site CoinDesk, which had published the article that caused suspicion around FTX, and the crypto lender Genesis.
It is this last company, Genesis, that's at the center of Winklevoss's accusations.
Genesis is Gemini's partner in a rewards program Gemini offered to attract customers. The program is called Gemini Earn. It's a savings product that promises customers of the cryptocurrency exchange as much as an 8% annual return on crypto deposits, depending on which assets are held.
Under this program, Genesis serves as Gemini's primary lender.
Genesis Owes Rewards Program Users $900M
Genesis owes $900 million to Gemini's Earn users. Last November, the brokerage stopped customers from making withdrawals and issuing new loans as a result of the bankruptcy of FTX. Gemini was also forced to pause withdrawals related to Gemini Earn following the decision of Genesis.
For several weeks the two companies have been trying to solve the problem, but apparently things are not moving forward. In an open letter to Silbert on Jan. 2, Cameron ties that lack of progress to Silbert.
Silbert responded by stating that he sent a proposal to Gemini: "DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response," Silbert asserted.
Winklevoss denied the claims and gave Silbert until Jan. 8 to come to an agreement.
He has just published a scathing letter in which he accuses Silbert of having deliberately disguised Genesis accounts to hide huge losses linked to the liquidation of the hedge fund Three Arrows Capital, to which the crypto lender had lent $2.6 billion.
"I am writing to let you know that Gemini and more than 340,000 Earn users have been defrauded by Genesis Global Capital, LLC (Genesis), together with its parent company Digital Currency Group, Inc. (DCG), its founder and CEO Barry Silbert, and other key personnel," Winklevoss wrote in an open letter to the DCG board.
He also published the letter on Twitter. You can read it here.
A Harsh Winklevoss-Silbert Dispute
"These parties conspired to make false statements and misrepresentations to Gemini, Earn users, other lenders, and the public at large about the solvency and financial health of Genesis," the entrepreneur continued.
"They did so in an effort to mislead lenders into believing that DCG had absorbed massive losses that Genesis incurred from the Three Arrows Capital Ltd. (3AC) collapse and induce lenders to continue making loans to Genesis. By lying, they hoped to buy time to dig themselves out of the hole they created."
Winklevoss uses past statements from executives of Genesis as well as public figures related to the liquidation of 3AC to support his allegations.
He claims, for example, that after having liquidated the collateral received during the loan granted to 3AC, Genesis found itself with a loss of $1.2 billion. Given the importance of this hole in its books, Genesis should have proceeded to a restructuring but did not do so, Winklevoss argues. In doing so, the platform gave the impression of being in good financial health.
He concludes that Silbert must step down as CEO.
"There is no path forward as long as Barry Silbert remains CEO of DCG," Winklevoss said. "He has proven himself unfit to run DCG and unwilling and unable to find a resolution with creditors that is both fair and reasonable."
"As a result, Gemini, acting on behalf of 340,000 Earn users, requests that the Board remove Barry Silbert as CEO, effective immediately, and install a new CEO, who will right the wrongs that occurred under Barry’s watch."
DCG denied Winklevoss's charges and request,
"This is another desperate and unconstructive publicity stunt from Cameron Winklevoss to deflect blame from himself and Gemini, who are solely responsible for operating Gemini Earn and marketing the program to its customers," a DCG spokesperson told TheStreet.
"We are preserving all legal remedies in response to these malicious, false, and defamatory attacks. DCG will continue to engage in productive dialogue with Genesis and its creditors with the goal of arriving at a solution that works for all parties.”
This public tussle comes as the Department of Justice and the Securities and Exchange Commission are separately investigating ties between DCG and its Genesis subsidiary, Bloomberg News recently reported.
