The crypto platform Gemini, founded by identical twin billionaires Cameron and Tyler Winklevoss, sued a fellow crypto tycoon and his company on Friday, claiming that Gemini’s customers were defrauded out of hundreds of millions of dollars.
The suit, filed in New York Supreme Court against Digital Currency Group and its founding CEO Barry Silbert, claims the defendants orchestrated a scheme of “deception”to persuade Gemini customers and other depositors to lend “huge amounts of cryptocurrency and U.S. Dollars.”
According to the complaint, hundreds of thousands of Gemini’s users had loaned money to Genesis—a Digital Currency Group subsidiary—through a program called Gemini Earn. The program told customers they would earn interest as high as 7.4 percent on the loans and that they could pull their money at any time.
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That proved to be untrue. In November, following widespread turbulence in the crypto markets, Gemini froze withdrawals, locking up customers’ assets. The Financial Times later pegged the outstanding balance at $900 million.
In Friday’s filing, Gemini blamed Silbert and Digital Currency Group for the mess, claiming that they had lied about “Genesis’s purportedly robust risk-management practices.” After the demise of the crypto hedge fund Three Arrows Capital last summer, Genesis lost more than $1 billion, the complaint alleges. Nonetheless, the firm and Silbert allegedly “represented that DCG had absorbed the losses” and that it was “business as usual.” That was not accurate, and the spillover quickly impacted third parties like Gemini; Genesis filed for Chapter 11 bankruptcy protection in January.
In a statement, Digital Currency Group said of the lawsuit, “This is yet another publicity stunt from Cameron Winklevoss to deflect blame and responsibility from himself and Gemini, which operated the Gemini Earn program. Any suggestion of wrongdoing by DCG or any of its employees is baseless, defamatory, and completely false.” The statement added that the company expects to soon reach “an amicable solution for all parties to the Genesis bankruptcy” and claimed that “neither Cameron nor Tyler Winklevoss have been involved in any of the recent in-person meetings.”
As The Daily Beast has previously documented, Gemini Earn was controversial within the company itself long before Genesis’ meltdown. One former employee described the internal reaction after seeing Earn’s terms and conditions for the first time in 2021:. “[We] were like, “Holy shit, are you fucking kidding me?’”
The fine print informed customers that their assets were not secured in the case of a default, nor were borrowers “required to post collateral.” Gemini also acknowledged that it couldn’t promise long-term rates of return. Despite those risks, customers were required to indemnify Gemini for potential losses, unless they could prove gross negligence or willful misconduct.
Gemini implied that the risks were manageable, assuring users that its borrowing partners—namely, Genesis—had been “vetted through a risk management framework.” Gemini also said it would periodically conduct “an analysis of our partners’ cash flow, balance sheet, and financial statements to ensure the appropriate risk ratios and healthy financial condition.”
The company “definitely sold it as like, ‘It’s hassle-free. It’s easy. Get your crypto back right away, no delays,’” another former employee, Nick Fuhrmann, told The Daily Beast last year.
Those safeguards obviously did not protect Gemini users from Genesis’ troubles—though Friday’s lawsuit claimed that Genesis had misrepresented elements of its finances.
Gemini did not immediately respond to a request for comment.
