Gemini Files Lawsuit Against Digital Currency Group and Founder Barry Silbert, Alleging Fraud

Crypto trust firm Gemini has filed a lawsuit against Digital Currency Group (DCG) and its founder, Barry Silbert, accusing them of fraud. The lawsuit alleges that DCG subsidiary Genesis, which held funds for Gemini’s Earn program, committed fraudulent activities, leading to substantial financial losses for Gemini. Gemini’s goal with this lawsuit is to recover its funds from DCG.

Gemini had partnered with Genesis, allowing its customers to earn up to 7.4% in annual percentage yield. As part of the partnership, Gemini sent its customers’ funds to Genesis, which then loaned them out to various companies, including the now-defunct Three Arrows Capital. The lawsuit claims that Genesis, with the support and encouragement of DCG and Silbert, deceived Gemini’s Earn Lenders by falsely touting the robust risk-management practices and thorough vetting process of counterparties.

According to the lawsuit, Silbert allegedly asked Gemini to continue its Earn program, despite being aware of Genesis’ massive insolvency. The filing asserts that Silbert took steps to hide the fact that Genesis had a billion-dollar hole on its balance sheet. In January 2023, Genesis filed for bankruptcy, further exacerbating the situation.

The lawsuit also criticizes DCG’s claim that it absorbed the losses from Three Arrows Capital, stating that this statement is false. Additionally, the filing reveals that Genesis has failed to honor redemption requests since mid-November.

Gemini’s co-founder, Cameron Winklevoss, took to Twitter to accuse Silbert of orchestrating the “fraud against creditors” with DCG and Genesis. The lawsuit seeks compensation for damages, attorney’s fees, and any other appropriate relief.

In response, DCG described the allegations as defamatory and dismissed the lawsuit as a mere publicity stunt. The company claimed that it has been actively negotiating with representatives of the Official Unsecured Creditors Committee and Ad Hoc Committee, while Gemini’s leadership has been absent or only issuing press statements.

It’s worth noting that both Gemini and Genesis are facing a separate lawsuit from the U.S. Securities and Exchange Commission (SEC) over the Gemini Earn product. The SEC lawsuit, filed in January, alleges that Gemini Earn was an unregistered securities offering.

These recent developments highlight the growing legal challenges faced by cryptocurrency companies, as regulators strive to enforce compliance and protect investors. The outcome of this lawsuit between Gemini and DCG could have significant implications for the industry as a whole.