Barry Silbert has been given a week to pay roughly $1 billion by Cameron Winklevoss, co-founder of the digital token exchange Gemini.
On Monday, Winklevoss claimed that Silbert had acted “unconscionably” by avoiding his creditors and relocating to an “ivory tower.” The president of Gemini said in an open letter that he was serving as a steward for the more than 340,000 users of Gemini Earn, whose over $900 million in cryptocurrency has been held hostage at DCG’s Genesis Global Capital (GGC) since mid-November.
“You took this money—the money of teachers—to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades that inflated the fee-generating AUM [assets under management] of your trust, all at the expense of creditors and all for your own personal gain,” Winklevoss wrote in the letter shared on Twitter.
Winklevoss and his identical twin brother Tyler originally gained notoriety as a result of their legal battle with Mark Zuckerberg, whom they accused of stealing their concept for Facebook while they were Harvard University undergrads. This story was dramatized in the 2010 movie The Social Network. Later, the two used the now-defunct Mt. Gox exchange to purchase their first Bitcoin before founding Gemini.
For the last time, we are asking you to publicly commit to cooperating to address this problem by January 8th, stated Cameron Winklevoss, whose customers’ patience had all but run out.
Since the July failure of a significant creditor, the cryptocurrency hedge fund Three Arrows Capital, Genesis had been attempting to gradually reorganize and de-risk its balance sheet.
Nate Anderson, the CEO of short seller Hindenburg Research, discovered from 3AC’s bankruptcy filings that Genesis had extended a partially collateralized $2.36 billion loan.
According to management, a flood of redemption requests that overloaded GGC resulted from the stunning collapse of Sam Bankman- Fried’s centralized exchange FTX, which is suspected of embezzling customer funds to support bad wagers made by sibling trading business Alameda Research.
When the company chose to halt withdrawals, this had an impact on Gemini Earn, a service provided by Winkevoss’s company in which clients lent their cryptocurrency to GGC in return for an annual dividend.
In order to address the liquidity problems at Genesis and DCG and offer a way for the recovery of assets, ad hoc committee of Genesis creditors proposed a plan on behalf of the boutique investment firm Houlihan Lokey on December 20.
Every time we approach you for a concrete commitment, you evade us behind process, attorneys, and investment banks. Your actions after six weeks are not only wholly unacceptable but also despicable, wrote Winkevoss. This is someone else’s problem, or the notion that you can simply go to your ivory tower and hope that everything would miraculously disappear, is pure illusion.
The legal action accuses DCG of a “sham transaction”
DCG, which Gilbert founded in 2015, currently owes Genesis, a subsidiary of DCG, over $1.68 billion, with 65% of that debt in the form of a legally-binding promissory note with a maturity date of June 2032 and the remainder in the form of an intercompany loan that is due in May.
This deal was made so that the parent could save its struggling subsidiary Genesis, which was severely exposed to the failure of hedge fund Three Arrows Capital.
The WSJ reported in late November that DCG had immediately shifted the unit’s liabilities onto its own balance sheet and then issued the legally binding IOU to keep Genesis solvent in the hopes of recouping the money later, citing a letter Silbert addressed to investors.
Gemini, Winklevoss’ company, currently believes that DCG and Genesis are only experiencing a brief liquidity crunch as a result of an imbalance in the maturity of its assets and liabilities.
In this case, Silbert’s empire has enough money to repay his creditors, but not right away because the money isn’t immediately available. Gemini thinks a complete asset recovery is feasible if that is the case.
A loss of some kind is likely if Genesis has a balance sheet problem (balance-sheet insolvency), where its assets are less than its liabilities. Gemini continued to caution, noting that there is currently no indication of this.
Some creditors of Gemini Earn are not interested in waiting. They filed a class action complaint on December 31st, alleging contract breach.
In a last-ditch effort to avoid probable bankruptcy last summer, they charge Silbert’s DCG with purchasing the right to collect Gemini’s $2.3 billion debt from Three Arrows Capital in exchange for the $1.1 billion promissory note.
In a statement, they claimed that GGC concealed the insolvency in part by organizing a fraudulent deal with its parent firm, DCG.
