Three users of Gemini Earn filed a class arbitration case against Genesis Global Capital, Digital Currency Group (DCG), and Genesis Global Trading, with the American Arbitration Association on Dec. 30.
Winklevoss twins-owned crypto exchange Gemini offered an ‘Earn’ program where user assets were lent out to Genesis Global Capital, allowing users to earn interest. On Nov. 16, five days following the collapse of FTX and Alameda Research, Gemini announced that Genesis had halted withdrawals.
Genesis Global Capital, a key arm of Barry Silbert-led DCG, owes $900 million to Gemini Earn users.
The claimants in the class arbitration want Genesis to return their digital assets as per the Master Digital Asset Loan Agreements made between the two parties.
Class arbitration is a dispute resolution process where a neutral third-party arbitrator resolves the disputes between parties. While class arbitration is less formal, the decision of the arbitrator is binding and cannot be appealed, unlike class-action lawsuits.
In the arbitration case, the claimants alleged that Genesis first breached its Master Agreement when it became insolvent and concealed the fact from its lenders, including Gemini Earn users.
Furthermore, the claimants alleged that Genesis succeeded in concealing its insolvency partly by “orchestrating a sham transaction” with its parent firm DCG. In the purported sham transaction, DCG “bought” the right to collect a $2.3 billion debt owed by defunct hedge fund Three Arrows Capital (3AC) to Genesis for a promissory note of $1.1 billion due in May 2023, the claimants alleged.
As per the above allegations, the arbitration case claims that Genesis breached its Master Agreement, which terminated the loans between the firm and the claimants. Therefore, Genesis is obligated to return the digital assets of Gemini Earn users, the arbitration case alleged.
The case also alleged that Genesis breached the Master Agreement on Nov. 16 and subsequently when it refused to return the assets of Gemini Earn users despite repeated requests. Genesis also breached its agreement by failing to pay the interest due to Gemini Earn users at the end of November, the case alleged.
Lastly, the demand for arbitration claimed that Genesis engaged in the unregistered sale of securities, violating the Securities Act. The claimants are, therefore, seeking related damages.
Winklevoss and Silbert’s social media feud intensify
On Jan. 2, Gemini co-founder Cameron Winklevoss accused Silbert of engaging in “bad faith stall tactics” in an open letter shared on Twitter. The letter stated that DCG CEO Silbert agreed to sit down with concerned parties and hash out a resolution when there was a proposal on the table.
While Gemini delivered a proposal on Dec. 17 and an updated version on Dec. 25, Silbert has refused to sit down and find a resolution or agree on timelines for key milestones, the letter stated.
The letter further stated that everyone is aware of Silbert’s attempts to shield DCG from the problems at Genesis, but it will not work because DCG and Genesis are “beyond commingled.” The letter ended by asking Silbert to publicly commit to resolving the issue with Gemini by Jan. 8.
Responding to the letter, Silbert stated that DCG has never missed any interest payment to Genesis. He went on to say that DCG sent a proposal to Gemini on Dec. 29 but did not receive a response.