Winklevoss twins-owned Gemini and lending partner Genesis is charged by SEC with selling unregistered securities – after $900 million of investors’ deposits in Gemini Earn were frozen following FTX collapse
- Cameron and Tyler Winklevoss are facing yet another lawsuit over their Gemini cryptocurrency firm
- SEC alleges the firm, along with lending partner Genesis, offered unregistered securities to hundreds of thousands of investors through its Earn program
- The program swelled to more than $3 billion in assets in just six months, but as of last November, $900 million have been frozen
- It came after Gemini lent Genesis the money, but the company, run by Barry Silbert, saw its assets plummet following the collapse of crypto giant FTX
- The twins are now facing a class action lawsuit over the issue, with Cameron putting the blame on Silbert for failing to recoup the losses
US regulators filed a lawsuit against Genesis Global Capital and Gemini, owned by the Winklevoss twins, for illegally raising more than $3 billion through Gemini Earn.
The Securities and Exchanged Commission accused the firms of offering unregistered securities to hundreds of thousands of investors through the Earn program, which let clients earn interest by loaning out their crypto assets.
In a series of tweets following Thursday’s filing, Tyler Winklevoss, 41, slammed the lawsuit and said Gemini would defend itself in the case, which he called a ‘manufactured parking ticket.’
Tyler and his twin brother, Cameron, are the latest crypto kings to face intense scrutiny following the sensational collapse of FTX at the end of last year.
Their clients have also filed a class action fraud lawsuit claiming the duo duped customers out of $900 million that was lent to Genesis.
Cameron (left) and Tyler Winklevoss are facing yet another lawsuit over their Gemini cryptocurrency business. The SEC alleges that the firm, along with Genesis, offered unregistered securities to hundreds of thousands of investors through its Earn program
The program swelled to more than $3 billion in assets in just six months after launching in February 2021, but as of November, $900 million in earnings were frozen, with the Winklevoss twins blaming Genesis founder Barry Silbert (above)
Tyler slammed the new lawsuit as he denied allegations they ran the Earn program without proper regulation
According to the SEC’s lawsuit, the Gemini Earn program – which made lucrative promises to its clients – was not properly registered with the agency.
Launched in February 2021 and promoted by both Gemini and Genesis, the Earn program promised passive returns on customer’s cryptocurrency assets in exchange for the right to lend the tokens out.
The companies also touted that the Earn program offered generous interest rates of up to 7.4 percent. ‘That’s more than 100 times the national US average,’ Gemini wrote in one promotion.
While the company did warn of the risks involved when investing, the Earn program was widely boasted as a sure bet, and by August 2021, the program reached $3 billion in assets earned.
But nearly $1 billion have been frozen since mid-November, after it was revealed Gemini lent the money to Genesis, whose own assets plummeted following the fall of FTX, once the world’s second largest crypto exchange.
While the Winklevoss twins said they’re working to get customers’ their money, Cameron accused Genesis founder Barry Silbert of ‘bad faith stall tactics.’
SEC Chair Gary Gensler, who said Gemini’s alleged wrongdoings were not novel in the volatile crypto market, said both companies failed to comply with regulations.
‘Today’s charges build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws,’ Gensler said in a statement. ‘Doing so best protects investors.’
Tyler likened the lawsuit to a ‘manufactured parking ticket’ and condemned the SEC’s decision to announce the lawsuit to the press
Tyler, however, described the new lawsuit as ‘disappointing’ and ‘counterproductive,’ saying it ‘does nothing to further our efforts and help Earn users get their assets back.’
In his Twitter thread on Thursday, Tyler claimed the Earn program was properly regulated by the New York State Department of Financial Services, and that Gemini had been discussing the program with the SEC for more than 17 months.
‘For the avoidance of doubt, Gemini has always worked hard to comply with all relevant laws and regulations,’ Tyler wrote. ‘Any suggestion to the contrary is unsupported by the facts.’
Through its filing in the US District Court for the Southern District of New York, the SEC is seeking penalty fines against Gemini and Genesis, as well as a return of ‘all ill-gotten gains.’
The Winklevoss twins earned national attention over their heated court case against Facebook founder Mark Zuckerberg, as well as their appearance in the 2008 Beijing Olympics
Gemini’s website is full of statements assuring investors they’ll be made whole after they could no longer withdraw their interest earnings
In an open letter posted to Twitter, Cameron alleged that Silbert, CEO of Genesis parent company Digital Currency Group, has been stalling for over a month on returning the money it owes to users of Gemini’s Earn program.
Cameron accused DCG of owing $1.675billion to Genesis, money that could be used to pay back Gemini, as well as other lenders to Genesis.
In an online response, however, Silbert said that DCG did not borrow the money from Genesis and has made all payments on loans outstanding to Genesis.
Furthermore, he claimed that ‘DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response.’
Cameron fired back: ‘There you go again. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess.
‘It’s completely disingenuous.’
‘So how does DCG owe Genesis $1.675 billion if it didn’t borrow the money? Oh right, that promissory note…’ wrote Cameron, implying Genesis did loan DCG the funds.
Genesis previously told clients that due to its FTX exposure, it could take ‘weeks’ to find a potential way forward and that bankruptcy is a distinct possibility.
Cameron Winklevoss wrote an open letter addressed to Barry Silbert about the $900 million his Gemini customers are owed
Cameron, who runs Gemini Trust Co. – a crypto exchange – has customers who are owed $900million that the firm lent to Genesis, a DCG subsidiary
Cameron, facing the lawsuit from investors and mounting pressure from his own angry customers, said he had offered Silbert multiple proposals for a path forward, including one as recently as Christmas day.
He claimed the $1.675 billion ‘is money that Genesis owes to’ Gemini customers ‘and other creditors.’
‘It’s not lost on us that you’ve been working desperately to try and firewall DCG from the problems that you created at Genesis,’ Cameron wrote.
‘You should dispense with this fiction because we all know what you know – that DCG and Genesis are beyond commingled.’
The money in question, Winklevoss wrote, was used for faulty ventures of DCG’s, as well as ‘greedy share buybacks’ and ‘illiquid venture investments.’
The relationship between DCG and Genesis bears similarities to that between decimated crypto trading firm FTX and its sister trading arm Alameda Research
The Gemini/Genesis rupture is the latest result of the FTX/Alameda Research collapse, and the relationship between Genesis and DCG in some ways mirrors the problematic commingling of FTX and Alameda.
FTX founder and disgraced former CEO Sam Bankman-Fried is accused of secretly transferring $10 billion of customer funds from FTX to Alameda Research, a trading firm he started in 2017.
A large portion of that money disappeared, and he is estimated to have lost investors between $1billion and $2billion in the transfer.
Ultimately, it’s believed FTX lost more than $8billion of its customers’ money, owing its 50 biggest unsecured creditors a total of $3.1billion.
FTX advisers have since found over $5billion in cash or cryptocurrency assets it could use to pay back creditors, according to testimony at a Delaware bankruptcy court.
Bankman-Fried has pleaded not guilty to eight criminal fraud charges.
Billionaire Silbert’s DCG is the parent company of five crypto-focused companies, the largest of which is Grayscale, a digital asset manager that oversees $28billion of Bitcoin, Ether and other assets.
Currently, the SEC and federal prosecutors in Brooklyn are investigating the internal financial dealings of DCG and Silbert’s other companies.