Crypto Clash: Winklevoss vs. DCG

Martin Walker
Sep 8, 2023 at 12:00 pm

The ongoing feud within the cryptocurrency industry involving notable personalities has drawn the attention of US investigators who were already conducting financial inquiries into one of the sector's most distinguished empires.

As per a report by Bloomberg, authorities are presently delving into allegations of fraud made by Cameron Winklevoss, co-founder of the cryptocurrency exchange Gemini Trust Co, against the Digital Currency Group (DCG) and its founder, Barry Silbert.

Federal authorities have initiated an examination into Winklevoss's accusations

Winklevoss had asserted that DCG and Silbert had disseminated inaccurate information concerning the financial stability of Genesis, DCG's lending subsidiary, which filed for bankruptcy in January. Gemini, being the largest creditor of the bankrupt company, also instigated legal action against the cryptocurrency conglomerate, along with Silbert.

Individuals knowledgeable about the situation disclosed that prosecutors in Brooklyn, Federal Bureau of Investigation (FBI) agents, and personnel from the US Securities and Exchange Commission (SEC) engaged in an interview with Winklevoss in recent months to discuss his claims.

These same insiders, who wished to remain anonymous due to the confidential nature of the investigation, noted that the US Attorney's Office for the Eastern District of New York specifically probed Silbert's behavior.

Genesis currently bears a debt exceeding $3.5 billion, owed to its top 50 creditors, with approximately $766 million designated for Gemini customers, according to the Chapter 11 bankruptcy filing from January. Notably, Gemini had previously collaborated with Genesis on its Gemini Earn program, where customers' cryptocurrencies were lent out to generate returns.

US law enforcement authorities are honing in on the $1.1 billion promissory note issued by DCG to Genesis following the downfall of the crypto hedge fund Three Arrows Capital (3AC). The investigation also scrutinizes the information provided by Silbert to investors and other stakeholders regarding this arrangement, according to those familiar with the US inquiry.

Federal prosecutors and regulators have conducted interviews with both past and current Genesis executives, including former CEO Michael Moro. Meanwhile, the office of New York Attorney General Letitia James has also sought interviews with past and present Genesis executives in recent months as part of its independent investigation into DCG.

Gemini's Lawsuit Against DCG

Gemini's lawsuit, filed on July 7th, alleged that DCG and Silbert misrepresented the financial stability of Genesis, convincing Gemini Earn customers to remain in the lending program. This was done despite DCG and Silbert's awareness of a billion-dollar deficit in Genesis's balance sheet, linked to the collapse of 3AC last year, as claimed by the crypto exchange led by the Winklevoss twins.

In response, DCG filed a motion to dismiss the lawsuit last month, further adding complexity to the ongoing legal battle.

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