Genesis-DCG Loan Leads to Class-Action Arbitration Case From Gemini Clients

Claimants allege in a filing that Genesis breached its Master Agreement when it became insolvent in the summer of 2022, while hiding its insolvency from lenders like Gemini.

AccessTimeIconJan 3, 2023 at 4:17 a.m. UTC
Updated Jan 9, 2023 at 10:46 p.m. UTC
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Three Gemini Earn users have filed a request for class-action arbitration against Genesis Global Capital and Digital Currency Group in response to Gemini suspending its Earn redemption program due to Genesis freezing withdrawals.

DCG is also the parent company of CoinDesk.

Class-action arbitration — a dispute resolution process where a neutral third-party arbitrator resolves disputes between parties — is often seen as an alternative to a class-action lawsuit. The arbitration process is usually voluntary and less formal. However, the decision of the arbitrator is binding and cannot be appealed, making the process potentially faster and less expensive than a class-action lawsuit.

The claimants allege Genesis has failed to return their and all Gemini Earn users' digital assets as required under the Master Agreements between the firm and users.

They claim Genesis first breached the Master Agreement when the firm became insolvent in the summer of 2022, but concealed its insolvency from its customers.

Genesis then, they allege, engaged in a sham transaction with its parent company, DCG, to conceal the insolvency, exchanging the right to collect a $2.3 billion debt owed to Genesis by the now-insolvent hedge fund Three Arrows Capital for a promissory note of $1.1 billion due in 2033.

The group also claims that Genesis’ Master Agreement effectively is creating unregistered sales of securities, and are seeking to rescind the contracts of sale and related damages.

There is also a concurrent class-action suit filed against Gemini in late December by investors Brendan Picha and Max J. Hastings, which alleges the exchange engaged in the sale of unregistered securities via its Earn program.

"When Genesis encountered financial distress as a result of a series of collapses in the crypto market in 2022, including FTX Trading Ltd. (“FTX”), Genesis was unable to return the crypto assets it borrowed from Gemini Earn investors," a filing from the Pica and Hastings class action says. "[Gemini] refused to honor any further investor redemptions, effectively wiping out all investors who still had holdings in the program, including plaintiffs."

Gemini co-founder Cameron Winklevoss and DCG CEO Barry Silbert engaged in a back-and-forth on Twitter late Monday, where the exchange executive accused Silbert of engaging in “bad faith stall tactics” over plans to resume withdrawals from Genesis.

Winklevoss says that Genesis and DCG owe Gemini and its clients $900 million, and gave Silbert until Jan. 8 to publicly commit to solving this problem.


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