Gemini’s Winklevoss confrontation with Barry Silbert may trigger Chapter 11 at Genesis

The digital asset industry is bracing for a another epic collapse, it seems. Two months after the balance sheet of Alameda Research was made public, prompting Binance CEO CZ to offload the firm’s FTT holdings, which triggered a bank run at FTX and its eventual collapse, now it is Gemini’s Cameron Winklevoss going public against Barry Silbert, CEO of Digital Currency Group.

Digital Currency Group is at the epicenter of the bitcoin and blockchain industry. The global enterprise builds, supports, and invests in companies all over the world and is the parent company of CoinDesk, Foundry, Genesis Global Capital, Grayscale Investments, and Luno, among others.

Cameron Winklevoss publishes open letter to Barry Silbert

Cameron Winklevoss from the Winklevoss Twins has published an open letter addressed to DCG’s Barry Silbert on Twitter, in order to put further pressure on DCG, the parent company of Genesis Global, which has paused withdrawals on its crypto lending business.

For years, Gemini has been a respected crypto exchange. Gemini Trust Company, LLC is a New York trust company regulated by the New York State Department of Financial Services (NYDFS). The firm, however, launched Gemini Earn in partnership with DCG’s Genesis Global, which were seen as “accredited and vetted third-party borrowers who deliver yield to Gemini users generated through payment of interest on loaned assets”.

Things changed ever since the collapse of Celsius Network, which led Genesis to pause withdrawals from Gemini users. The situation has become explosive in the last week of 2022 when two Gemini users decided to sue the crypto exchange.

“When Genesis encountered financial distress as a result of a series of collapses in the crypto market in 2022, including FTX Trading Ltd. (“FTX”), Genesis was unable to return the crypto assets it borrowed from Gemini Earn investors. The company refused to honor any further investor redemptions, effectively wiping out all investors who still had holdings in the program, including plaintiffs”, the lawsuit reads.

Now that the Winklevoss twins are feeling the heat, Cameron Winklevoss went to Twitter to confront Barry Silbert publicly with an open letter.

Earn Update: An Open Letter to @BarrySilbert pic.twitter.com/kouAviTho4

— Cameron Winklevoss (@cameron) January 2, 2023

The letter puts blame on Barry Silbert and Digital Currency Group for not allowing withdrawals at Genesis, although the latter has “lent” $1.675 billion to DCG in a promissory note. The dispute appears to be about the limited liability and the definition of a law.

Barry Silbert replied to the open letter: “DCG did not borrow $1.675 billion from Genesis DCG has never missed an interest payment to Genesis and is current on all loans outstanding; next loan maturity is May 2023 DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response.”

Cameron quickly responded: “There you go again. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess. It’s completely disingenuous. So how does DCG owe Genesis $1.675 billion if it didn’t borrow the money? Oh right, that promissory note…[…] Will you, or will you not, commit to solving this by January 8th in a manner that treats the $1.1 billion promissory note as $1.1 billion?”

Involuntary Chapter 11 can be triggered with 3 creditors

The back and forth on Twitter ended there, but the firms’ legal teams are likely to be busy because, as under current law, if the debtor has more than 12 creditors, three creditors can join in an involuntary petition to trigger a Chapter 11 bankruptcy.

The problem for the Winklevoss Twins and Gemini users is that a Chapter 11 bankruptcy will not solve their problem over the short term. And after years of bureaucracy and litigation, users might only get cents on the dollar.

Many firms in the past have experienced this. The same is likely to happen to Celsius Network and FTX.