- Crypto conglomerate DCG is seeking to dismiss a fraud lawsuit brought by Cameron and Tyler Winklevoss’ Gemini exchange.
- Digital Currency Group argues Gemini is trying to deflect blame for the problems at Gemini’s Earn lending service.
- Also on Thursday, DCG filed the controversial promissory note at the center of the controversy.
Digital Currency Group, or DCG, filed a motion to dismiss a lawsuit brought last month by cryptocurrency exchange Gemini, which alleged the crypto conglomerate and its founder, Barry Silbert, committed fraud through DCG’s Genesis subsidiary that held funds for Gemini’s Earn program.
Gemini’s July 7 lawsuit claims DCG and Silbert misrepresented the financial health of lending subsidiary Genesis and induced Gemini Earn customers to continue in the lending program, even though DCG and Silbert were aware Genesis had a billion-dollar hole in its balance sheet linked to last year’s collapse of Three Arrows Capital, a crypto hedge fund that's also known as 3AC.
In its response on Thursday, DCG said Gemini hadn’t supported its fraud claims in the lawsuit. (DCG owns CoinDesk.)
Gemini said it had no comment on the filing.
The Gemini Earn program was launched in February 2021. It allowed the exchange’s retail customers to earn yields of up to 7.4% by lending their crypto assets to Genesis. The implosion of 3AC in June 2022 harmed Genesis, whose position became even worse after crypto exchange FTX’s collapse in November 2022. Gemini had to halt withdrawals from the Earn program that month, and Genesis filed for bankruptcy on Jan. 19, 2023.
Cameron and Tyler Winklevoss
DCG called Gemini’s July complaint a continuation of a “public relations campaign” carried out by the exchange’s owners, Cameron and Tyler Winklevoss, and “an effort to deflect blame by contriving a public, Twitter-based character assassination campaign against Defendant DCG (Genesis’ indirect parent) and Silbert (DCG’s founder) — neither of whom operated, oversaw or had any substantive involvement with the Gemini Earn program.”
DCG also said Genesis “is not a defendant here,” claiming that “Gemini actively encouraged its existing customers to lend their digital assets (including cryptocurrencies) to Genesis in exchange for interest, representing to its customers that it was a sophisticated market participant and that it had thoroughly vetted Genesis.”
A critical component of Gemini’s complaint concerns claims that DCG and Silbert assured the Winklevoss twins, during a meeting in the summer of last year that DCG had absorbed a $1.1 billion hole left in the Genesis balance sheet caused by the 3AC collapse. The Winklevoss twins claim the loan, a 10-year promissory note at 1% interest, was misrepresented to them as a short-term receivable that could be cashed out in a year.
DCG, in its dismissal, said Gemini “does not explain” why the representation made by Silbert at a lunch meeting with a Gemini co-founder was fraudulent. On Thursday, DCG entered the promissory note into the court docket of the case.
Although Gemini initially filed its lawsuit in New York’s State Supreme Court, DCG successfully shifted it to the U.S. District Court for the Southern District of New York, court records show.
“At its core, the lawsuit is a continuation of the Winklevoss’ yearlong Twitter-based character assassination and public relations campaign against DCG and Barry Silbert to deflect blame from their own mismanagement,” a representative for DCG said via email.
UPDATE (Aug. 10, 2023, 16:28 UTC): Adds that Gemini declined to comment and the fact that DCG filed the controversial promissory note mentioned in the case.
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