A quick look at the legal documents Gemini sued DCG: 5 counts and 6 major demands

Author: jk

This article will summarize the content of the indictment filed by Gemini against DCG and its CEO Barry Silbert in a New York court, and understand DCG’s 5 counts and Gemini’s 6 major demands.

Gemini Founder’s Tweet

On June 7, Cameron Winklevoss, one of Gemini’s founders Cameron Winklevoss View More revealed on Twitter that Gemini filed a personal lawsuit against Digital Currency Group (DCG) and its CEO Barry Silbert in a New York court after the warning was invalidated. litigation. Gemini accused Barry Silbert of allegedly engaging in fraud against creditors. According to Cameron, Barry not only played a central role in orchestrating the fraud, but was personally involved in its execution.

In this tweet, Cameron briefly stated DCG’s 12 core “counts” (actually an extension of five charges), and said that “the indictment tells the complete story.” So, what is in this 33-page indictment What’s the content?

Contents of the indictment

The indictment begins by stating, “Defendants DCG and Silbert participated in a fraudulent scheme to induce various depositors to continue to deposit money into Genesis Genesis, a subsidiary of DCG. ) signboard, whose role is to enable large institutions to contact and manage risks. Due to the lack of asset liquidity caused by the FTX incident, it filed for bankruptcy protection with the court in January 2023. See moreGlobal Capital, LLC (hereinafter referred to as “Genesis”) “Lending large amounts of cryptocurrency and USD, including Gemini users with Gemini acting as custodian and agent. This action seeks to recover damages and losses incurred by Defendants against Gemini as a result of false, misleading, and incomplete statements and omissions made against Gemini by DCG and Silbert, and by Defendants in encouraging and facilitating Genesis’ fraudulent conduct against Gemini play a role.

This indictment is in the style of the previous SEC and Coinbase Coinbase (NASDAQ: COIN), an American cryptocurrency exchange. The company was founded in 2012. As of March 2021, Coinbase is the largest cryptocurrency exchange in the United States by trading volume. On April 13, 2021, Coinbase was listed on the Nasdaq exchange, becoming the first listed cryptocurrency company in the United States. View More and other legal documents have a completely different style. The style of legal documents related to the SEC and Coinbase is very conservative. Even if the allegations are sharp, the words and legal terms are very professional. However, in this Gemini indictment, there is a lot of vernacular, sometimes even direct venting: “(Genesis’s statement) is all lies.” "Whether the defendant or Genesis disclosed that Genesis had a fast The massive risk borne by a collapsing carry trade? No. Did they take immediate steps to unwind that risk, increase additional collateral requirements, and address escalating debt liabilities? No.” “More lies below.”

very emotional word

Immediately afterwards, there are various charges stated by Gemini:

1. Genesis did not thoroughly review lenders and concealed losses for lenders

The indictment alleges that DCG and Genesis enticed Gemini’s Earn users to borrow heavily into DCG with what they claimed was “strong risk management practices and a thorough vetting process for refinancing objects,” but in effect lent those funds under management to high-risk arbitrage The counterparty of the transaction and collect high management fees from it. In 2021, the funds could not be repaid, but Genesis did not disclose these losses or even take immediate steps to prevent them. They allowed the borrower to remain in debt for a full year and continue to borrow from Gemini with huge management fees. At this point, the game has turned into a Ponzi scheme.

When Three Arrows collapsed, the game was over. “Since then, a chain of events has led to the present situation,” the indictment reads. “Genesis violated its statements about risk management and careful review of counterparties…According to Genesis’ statements, Three Arrows’ loans held The total value of its collateral was equivalent to 80% of its exposure to 3AC; then-CEO Michael Moro made it very clear that these losses would not affect Genesis’s operating business: "Our potential losses are limited and can be obtained through our own balance sheet offset. We’ve taken the risk out of the way and moved on. "

In reality, however, the collateral was worth less than 50% of the outstanding debt. The scale of Genesis’ losses became clear as details continued to emerge from 3AC’s liquidation proceedings. At the time of 3AC’s collapse, 3AC owed Genesis a staggering $2.36 billion (through 3AC’s debt to Genesis’ affiliates in Singapore). Despite Moro’s assertion that 3AC’s loans had more than 80% collateralization requirements, Genesis was only able to realize $1.16 billion when liquidating the 3AC position. In other words, by mid-July 2022, the value of the collateral held by Genesis ended up being less than 50% of the outstanding loan amount, suffering losses of about $1.2 billion when 3AC began liquidation. Genesis has little hope of recovering any substantial value from 3AC’s liquidation, as 3AC’s founders have vanished, leaving liquidators looking for assets to distribute to creditors. This amount left Genesis with a financial deficit of hundreds of millions of dollars.

2. Genesis claims that the parent company DCG intervenes and bears the losses, but in fact it is just a blank check

In order to appease Gemini and keep Gemini Earn’s loan to Genesis going, Genesis’ side falsely stated that DCG had absorbed the losses of the 3AC loan at the parent company level, and thus claimed that Genesis’ operations were “business as usual”.

Former CEO Michael Moro on Twitter Twitter Twitter is a social network service platform originated in the United States. On October 27, 2022, Musk completed the acquisition of Twitter and merged it into the newly established “X” company. According to Musk’s previous tweets, he will create an all-inclusive application, and mentioned that buying Twitter can accelerate this wish. See More reads, “DCG has assumed certain responsibilities of Genesis in relation to this counterparty to ensure that we have the capital to support long-term operations and expand our business.” Genesis’ then-managing director and co-head of the trading and lending division Matt Ballensweig of People, reassured another Genesis depositor on July 18, 2022: “To date, all losses to 3AC have been absorbed by our parent company, DCG, Genesis’ balance sheet remains sound and we continue as normal operations.” He added: “DCG directly bears the remaining losses.”

So how did DCG actually bear the loss of Genesis? The answer is that DCG just wrote an IOU.

According to Gemini, “Behind the scenes, DCG and Genesis entered into a sham transaction: Specifically, on June 30, 2022, Defendant Silbert signed an unsecured promissory note on behalf of Defendant DCG to pay Genesis $1.1 billion …which allowed Genesis to place the DCG promissory note as an asset on its balance sheet, allegedly “offsetting” its $1.2 billion loss from the 3AC debacle. In reality, however, the fair market value of the promissory note was only 11 billion face value. The note will mature in 10 years, that is, June 30, 2032, and bear interest at only 1%, which is far less than the unsecured borrowing that DCG may have to pay. market rate."

According to the indictment, Genesis told its depositors that 3AC’s losses had been “borne” or “absorbed” by DCG, meaning that Genesis had been compensated for all of its $1.2 billion losses. However, promissory notes do not do this. The promissory note also didn’t improve Genesis’ immediate liquidity position. From a practical perspective, a promissory note is simply a paper obligation, an accounting device designed to make it appear that Genesis has a positive equity interest and is actually able to meet its obligations to its depositors without requiring DCG to provide an actual amount that would make Genesis make up Financial support needed for loss. (That is, the loss of Genesis is not repaid with real money.)

This even led to Genesis releasing a series of financial statements, prepared with the knowledge and active participation of DCG, showing that DCG had injected $1.1 billion into Genesis in short-term receivables to enable Genesis to meet its obligations to depositors . (A separate allegation is detailed below.)

DCG personnel, including then-COO Mark Murphy, were involved in disseminating the misstatements, which creditors were told had been prepared “with the assistance of DCG and Genesis’ finance and accounting teams.” However, it then became clear that DCG had not actually covered these losses with its own funds, and Genesis remained deeply insolvent.

3. DCG and Genesis conspired to falsify financial reports to hide the truth from Gemini and creditors

According to the indictment, as an extension of the empty IOU, DCG and Genesis also issued a series of false financial reports accompanied by false and misleading statements about Genesis’ alleged DCG support. These reports and misrepresentations “are designed to hide the truth from Genesis’ depositors.”

To illustrate this point, Gemini released an emailed financial statement:

Genesis listed the assets on the IOU as “other assets” in its “current assets,” the complaint said. For purposes of US GAAP, “current assets” are cash and other resources that are reasonably expected to be converted into cash within one year. Thus, the term specifically excludes amounts owed by affiliates that cannot be recovered in the ordinary course of business within one year. In this asset,

By including the promissory notes at their full value in the “current assets” category, Genesis claims it has $1.1 billion worth of cash on its balance sheet that can be collected within a year. Not to mention that the value of the promissory note is only a fraction of its nominal value, and the promissory note itself is due (and repaid to DCG) after 10 years. The note was clearly not a liquid asset, but Genesis falsely listed it as such in order to induce Gemini to proceed with the Gemini Earn program.

As far as this financial statement is concerned, the value of this promissory note is one-third of its current assets.

Gemini’s side also included other evidence, stating that Genesis “beautified” the promissory note in terms of receivables and loan term data, thereby deceiving Gemini to continue to open the Earn plan to Genesis.

4. Defendant Barry Silbert (CEO of DCG Group, the parent company of Genesis) personally ended up defrauding Gemini

This is something that Cameron has mentioned several times on Twitter before, and has even sent an open letter. Defendant Silbert personally went to great lengths to keep creditors in the dark by continuing to spread the lie that DCG had “absorbed” 3AC’s losses, the complaint states. For example, after learning in mid-October that Gemini had given 30 days’ notice to terminate Gemini Earn’s loan program, Silbert personally contacted Gemini’s founder, Cameron Winklevoss, and Silbert had lunch at a restaurant in New York City on October 22, 2022 Meeting. At that lunch meeting, Silbert said a lot, aiming to keep Gemini from stopping the Earn project, even though Silbert had realized at the time that Genesis was insolvent.

In reality, Silbert did far more than this fraudulent omission. He told Gemini that while Genesis’ loan portfolio is “complex,” it could successfully unwind the crisis within a reasonable amount of time. In other words, Silbert told Gemini that Genesis faced only a short-term mismatch in the timing of its loan portfolio, masking the reality of a large hole in Genesis’ balance sheet and an inability to meet its obligations to Gemini and others because DCG did not actually undertake 3AC loss. Based on reliance on Silbert’s misrepresentation, Gemini’s decision to delay the termination of the Gemini Earn program did not explore the possibility of a more rapid termination or other remedial measures that Gemini would have taken if Silbert had stated the truth.

5. DCG and other Genesis executives also participated in the fraud and repeatedly concealed the truth from Gemini and other creditors

The entire promissory note scheme shows that Barry, DCG and Genesis were all involved in this fraud. Its design and execution required the full participation and cooperation of Barry, DCG and Genesis, and could only “work” if it were hidden from creditors.

Gemini’s side provided more evidence. On July 19, 2022, then-COO Mark Murphy reiterated the false story previously shared with depositors in the same “Three Arrows Post-Analysis” document Genesis sent to Gemini. Murphy said DCG stepped in and absorbed Genesis’ losses on its 3AC deal, and said those losses were offset on DCG’s balance sheet. He further said that with the backing of DCG, Genesis is well-capitalized for normal operations in future businesses. He assured depositors that Genesis is one of the most important components of the DCG empire, that DCG has major plans for Genesis’ future business, and promised to provide Genesis with continued support to enable the company to continue to grow.

Matt Ballensweig, Genesis’ managing director and co-head of transactions and lending, provided details about Genesis’ roughly $1.8 billion in lending to related entities, which had been disclosed in previous Genesis reports. Ballensweig claimed at the time that Genesis had about $922 million in outstanding loans to DCG, an amount that deliberately ignored a $1.1 billion promissory note that was trying to hide from Genesis’ depositors. At the same time, Ballensweig misrepresented that DCG “undertaken a $1.1 billion loan on June 30, 2022,” a misrepresentation designed to convince depositors that Genesis had already recovered for losses incurred on the 3AC loan. This is entirely fictional, but Murphy made no effort to correct Ballensweig’s misrepresentation. Likewise, Ronald DiPrete, DCG’s head of special projects and head of finance, was CC’d on the email, but he also failed to correct Ballensweig’s misrepresentation.

At the same time, multiple executives from DCG and Genesis were repeatedly copied on the relevant emails, but “no action was taken to correct this error.”

Gemini’s Appeal

Gemini made six major claims at the end of the indictment:

A. Actual damages, in amounts determined based on the relief sought in this action;

B. Punitive damages, in amounts to be determined in court pursuant to the relief sought in this action;

C. Announcement of judgment affirming that Defendants are liable for any future damages that may arise based on the relief sought in this action;

The DD D-ETF raised $50,000,000 in an unknown funding round on May 10, 2022. Participating parties: Gem Capital View more. Reasonable attorney fees;

E. Costs of this action;

F. Other Remedies Deemed Just and Appropriate.

The outcome of this case will have an important impact on the cryptocurrency industry and will continue to be reported.