Gemini sues DCG in latest effort to recover funds for Earn customers
Gemini sued Digital Currency Group and its chief Barry Silbert Friday, escalating claims of unpaid debts and alleged fraud.
Why it matters: Customers in Gemini's Earn program have been stuck in limbo since November, when the crypto exchange halted withdrawals as a result of its lending partner Genesis, a DCG unit, hitting the skids.
Catch up fast: Cameron Winklevoss, Gemini's co-founder, set an ultimatum days before the suit — extending "best and final" terms for a deal which laid out a plan for DCG to pay back funds owed to Gemini's Earn customers.
State of play: Gemini's lawsuit landed July 7, after the deadline passed without an agreement, seeking to recover losses and damages it says are a result of DCG and Silbert misrepresenting Genesis' financial standing.
- The complaint alleges that DCG and Silbert "engaged in a fraudulent scheme to induce a variety of depositors."
- Between the lines: Winklevoss is claiming that DCG and Silbert obfuscated the financial health of Genesis and accepted depositors' money while insolvent.
The other side: DCG on Friday responded to the lawsuit in a tweeted statement saying it was "defamatory" and "completely false."
Zoom in: Gemini's complaint points to a snapshot of Genesis' balance sheet that treats the infamous $1.1 billion 10-year intercompany promissory note between DCG and Genesis as a "current asset."
- The crypto exchange claims emailed communiques from Genesis show how Gemini was misled.
What others are saying: The allegations in the Winklevoss suit, if proven true, would point to "striking similarities" to Enron, Ram Ahluwalia, CEO and co-founder of Lumida Wealth Management, observed in an 18-part Twitter thread.
- "Enron employed creative accounting to hide its debt and inflate profits, leading to its bankruptcy in 2001," he said.
Yes, but: Even if the allegations in the Winklevoss suit ultimately proved a case of fraud, Gemini would still need to show in discovery that DCG and Silbert directed Genesis, Ahluwalia noted.
Quick take: Genesis' bankruptcy proceeding was supposed to be a quick one, but it looks like it will take much longer than initially quoted.