On December 30, three Gemini Earn users petitioned (1) the American Arbitration Association for a class action arbitration against Genesis Global Capital, Digital Currency Group (DCG), and Genesis Global Trading.
Gemini, the crypto exchange started by the Winklevoss twins, offered a service called "Earn," through which users could earn interest on their funds by lending them to investment firm Genesis Global Capital. Gemini stated (2) that Genesis had suspended withdrawals on November 16, five days after FTX and Alameda Research went bankrupt.
Barry Silbert's DCG, of which Genesis Global Capital is vital, owes Gemini Earn investors $900 million.
The claimants in the class action arbitration demand that Genesis repay them for the digital assets they loaned to the company under the terms of the Master Digital Asset Loan Agreements.
During class arbitration, a neutral third-party judge decides the outcome of the parties' claims. In contrast to class action litigation, an arbitrator's decision in a class arbitration proceeding is final and not subject to review.
The Details of the Arbitration Dispute
The arbitration dispute centered around allegations that Genesis initially violated its Master Agreement by going insolvent and then lying to its creditors, who included users of Gemini Earn.
The claimants also asserted that Genesis "orchestrated a sham transaction" with its originator company DCG to conceal its insolvency. According to the claims, DCG "bought" the right to collect a $2.3 billion debt owed to Genesis by the now-defunct hedge fund Three Arrows Capital (3AC) for a $1.1 billion promissory note due in May 2023.
Claims that Genesis broke its Master Agreement and thereby canceled the borrowers' loans to the company are at the heart of the arbitration action. According to the arbitration lawsuit, Genesis must return the users' digital assets from Gemini Earn.
The lawsuit also claimed that on November 16 and afterward, Genesis broke the Master Agreement by failing to restore users' assets from Gemini Earn. The lawsuit further alleges that Genesis broke the terms of the agreement by not paying the interest owed to Gemini Earn customers as of the end of November.
Finally, the petition for arbitration alleged that Genesis had violated the Shares Act by selling securities without registering them. As a result, the claimants are asking for monetary damages.
The Conflict Between Winklevoss and Silbert Escalates
Cameron Winklevoss, the co-founder of Gemini, published (3) an open letter accusing Silbert of "bad faith stall tactics" on Twitter on January 2. In response to a proposed solution, DCG CEO Silbert wrote in the letter that he would be willing to meet with all parties involved to discuss a compromise.
It was said in the letter that despite Gemini submitting a proposal on December 17 and an amended version on December 25, Silbert has failed to meet and negotiate a remedy or agree on important milestone timelines.
The letter went on to say that DCG and Genesis are "beyond commingled," therefore Silbert's attempts to keep DCG apart from Genesis' issues are futile. At the letter's close, Silbert was pressed for a public promise that he and Gemini would settle the dispute by January 8.
Silbert responded (4) to the letter, saying that DCG had always paid its interest on time to Genesis. He continued by saying that Gemini did not respond to DCG's proposal email on December 29.