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(Kitco News) -
Cameron Winklevoss, co-founder with his twin brother of the Gemini cryptocurrency exchange, published an open letter to Digital Currency Group (DCG) CEO Barry Silbert on Monday evening, accusing the crypto mogul of abusing the arbitration process to avoid paying the $1.2 billion debt owed to the exchange and threatening multiple legal actions on July 7 if the demands of Gemini’s “best and final offer” are not met.
“Barry — today marks 229 days since Genesis halted withdrawals and 174 days since I last wrote an open letter to you,” Winklevoss wrote. “As a reminder, I write to you on behalf of 232,000 Earn users who have over $1.2 billion of assets trapped in Genesis, a company owned and controlled by Digital Currency Group (DCG), a company owned and controlled by you.”
Winklevoss wrote that after nearly eight months of interactions with Silbert and his lawyers and advisors, he believes they never had any intention of achieving a resolution with creditors and Earn users. “Instead, you have dedicated the last eight months to buying time so you can raise money and stiff creditors and Earn users again,” he said.
Winklevoss accused Silbert of multiple acts of fraud and bad faith negotiations beginning in June and July of 2022 “to make us all believe that DCG had absorbed the $1.2 billion in losses that Genesis incurred from the collapse of Three Arrows Capital Ltd. (3AC) in May 2022,” he said. “In reality, DCG absorbed none of these losses and instead entered into a bogus long-dated promissory note to make it look like it did so without ever sending as much as a penny to Genesis.”
Winklevoss said Silbert “engaged in this fraudulent transaction and subsequent accounting fraud” in an attempt to buy time and raise money to cover the losses. “Unfortunately for you, someone by the name of Sam Bankman-Fried came along and committed an even bigger fraud that had the undesirable effect of exposing your fraud,” he wrote. “Whoops.”
He said that at this point, Silbert should have either absorbed the $1.2 billion in losses or made a deal with creditors “You have chosen to do neither,” he said. “Instead, you have pretended to go through the motions of negotiating a deal in an effort to rope a dope creditors and position DCG to litigate the promissory note's viability in court for many years to come.”
Winklevoss claimed that Silbert’s real goal all along was to delay and stonewall creditors while scrambling behind the scenes to raise money to pay down the $630 million dollars that DCG owes Genesis. “This loan is the sword of Damocles that hangs over your head,” he wrote. “Unlike the fugazi promissory note that's not due for 10 years, this loan was due in May of this year. Failure to pay this loan would result in a DCG default and bankruptcy filing.”
He said that when it became clear to Silbert by May 1 that he wouldn’t be able to raise the money, he then entered into a bad-faith mediation process. “Faced with your second default and second bankruptcy in less than six months, you sought to buy time through a mediation,” he wrote. “Reluctantly, the creditors agreed to give you one last shot.”
Winklevoss said that eight weeks and multiple extensions later, there is still no deal because “the mediation has given DCG an indefinite forbearance on the $630 million it owes Genesis — for free.” He wrote that this forbearance “has denied creditors, including Earn users, the $630 million dollars that they were owed in May,” and it has also “completely undermined the critical bargaining chip that creditors and Earn users have to get you to come to the table and make good on the counterfeit promissory note and avoid protracted, scorched-earth litigation over it.”
“I write to inform you that your games are over,” Winklevoss said. “[A]ttached is a best and final offer. This proposal is fair and reasonable for everyone and represents the floor that creditors, who are required to support a deal, will accept.”
Gemini’s final offer demands that Silbert agree to a Plan Support Agreement (PSA) with creditors before July 7. The PSA includes a forbearance payment of $275 million denominated in BTC and USD paid on or before July 21, followed by two payments to cover the outstanding debt. The first payment would be for $355 million denominated in 40% USD, 40% BTC, and 20% ETH due two years from the PSA Effective Date, which combined with the $275 million forbearance payment, would total the “$630 million due since May 9-11.”
The second payment would be for $835 million, denominated in 40% USD, 40% BTC, 20% ETH, and would be due five years from PSA Effective Date. All told, the three payments would total $1.465 billion.
Winklevoss wrote that if Silbert and DCG don't agree to the deal as written by 4 p.m ET on July 6, 2023, they will proceed with the following next steps: First, Gemini will “File a lawsuit against DCG and you personally” on July 7 which will “outline your personal liability in hiding Genesis's insolvency and provide a blueprint for the 232,000 Earn users to commence similar actions against you and DCG.”
Second, they will demand “that the Genesis Special Committee fulfill their fiduciary duties by filing a turnover motion on or before July 7th that puts DCG into default and demands immediate payment of $630 million you owe to creditors and Earn users.”
Third, Gemini will “work with the Genesis Special Committee to advance a non-consensual plan that adheres to a strict timeline and provides for immediate distributions to creditors and Earn users.” And fourth, Gemini “will demand that the Unsecured Creditor Committee (UCC) fulfill its fiduciary duties by filing a lawsuit and taking depositions related to their investigation into the various intercompany loans and transactions between DCG and Genesis entities.”
Digital Currency Group has been beset with legal and financial problems since the collapse of FTX in November unleashed a chain reaction of massive investment losses, declining company valuations and collapsing asset prices across the cryptocurrency ecosystem.
On May 19, Gemini claimed that DCG had missed a scheduled payment under the terms of their agreement stemming from the bankruptcy of DCG’s Genesis lending platform, which declared bankruptcy in January.
A spokesperson for Genesis told Kitco Crypto at the time that they were “working collaboratively to address Digital Currency Group’s nonpayment of approximately $627 million in dollars and BTC that was due” and that the parties “are discussing potential terms of forbearance, a standalone chapter 11 plan for Genesis and other options to recover assets and maximize value to stakeholders.”
On Jan. 23, a class action lawsuit was filed against DCG and Silbert, alleging violations of federal securities laws. The class period is from Feb. 2, 2021, when Genesis and Gemini began offering the Gemini Earn program to retail investors, and Nov. 16, 2022, the day Genesis halted loan redemptions, effectively freezing the assets of Earn participants and other customers.
The lawsuit alleges that Genesis “engaged in an unregistered securities offering in violation of Section 5 of the Securities Act” when they entered into lending agreements that “fit the definition of securities” under the law.
The complaint also alleges securities fraud, claiming Genesis engaged in “a scheme to defraud prospective and current digital asset lenders by making false and misleading statement that intentionally misrepresented the financial condition of Genesis Global Capital” in order to maintain the flow of new digital assets to Genesis and to keep existing clients from pulling their assets out of the firm.
