This week, there was a report on the financial dispute between Gemini and DCG. For details, see "Gemini joint creation "ultimatum", DCG founder's "deadline" has passed?" ".
Today, we will summarize the content of the indictment filed by Gemini against DCG and its CEO Barry Silbert in New York court, and understand the 5 counts of DCG and the 6 major demands of Gemini.
Gemini Founder's Tweet
On June 7, Cameron Winklevoss, one of Gemini’s founders, revealed on Twitter that Gemini filed a lawsuit in New York court against Digital Currency Group (DCG) and its CEO Barry Silbert personally after the warning was invalidated. Gemini accused Barry Silbert of engaging in fraudulent activities 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?
Indictment content
The indictment begins by stating that "Defendants DCG and Silbert engaged in a fraudulent scheme to induce various depositors to continue to lend substantial amounts of cryptocurrency and U.S. dollars to Genesis Global Capital, LLC, a subsidiary of DCG ("Genesis")" , which includes Gemini users for whom Gemini acts as custodian and agent. This action seeks to recover Defendants against Gemini for damages and losses resulting from false, misleading, and incomplete statements and omissions made against Gemini by DCG and Silbert, and by Defendants in encouraging and enabling Genesis' fraud against Gemini play a role.
The style of this indictment is completely different from that of previous legal documents such as SEC and Coinbase. 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 plain language, sometimes even outright venting: "(Genesis's statement) is all lies." 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 vet lenders and concealed losses for lenders
The indictment alleges that DCG and Genesis enticed Gemini's Earn users to borrow heavily from 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 the 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 current situation,” the indictment reads. “Genesis violated its representations regarding risk management and careful scrutiny of counterparties...According to Genesis’ The total value of its collateral was equivalent to 80% of its exposure to 3AC; then-CEO Michael Moro was very clear that these losses would not affect Genesis's business operations: "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 is 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 (via 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 shortfall 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, the 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 wrote on Twitter, "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 expansion of the business." Matt Ballensweig, co-head of lending, assured another Genesis depositor on July 18, 2022: "To date, all losses to 3AC have been absorbed by our parent company, DCG, and Genesis' balance sheet remains sound. , we continue to operate as normal." He added: "DCG directly bears the remaining losses."
So how did DCG actually cover 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 .This allowed Genesis to place the DCG promissory note as an asset on its balance sheet, purportedly “offsetting” its $1.2 billion loss from the 3AC debacle. In reality, however, the fair market value of the promissory note was only 11 A fraction of the face value of USD 100 million. The notes will mature in 10 years, on June 30, 2032, and bear interest at just 1%, 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 did not improve Genesis' immediate liquidity position. From a practical standpoint, the promissory note is merely 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 Financial support needed for loss. (i.e. not repaying Genesis for losses in 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 later became clear that DCG had not actually covered these losses with its own funds, and Genesis remained severely insolvent.
3. DCG and Genesis conspired to falsify financial reports to hide the truth from Gemini and creditors
As an extension of the empty IOU, DCG and Genesis also issued a series of false financial reports with false and misleading statements about Genesis' alleged DCG support, according to the indictment. 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 matures (and is repaid to DCG) after 10 years. The note was clearly not a current 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 defrauded Gemini
This is something that Cameron has mentioned several times on Twitter before, and has even sent an open letter. Defendant Silbert personally took great pains to keep creditors in the dark by continuing to spread the lie that DCG had "absorbed" 3AC's losses, the indictment 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 program, even though Silbert had realized at the time that Genesis was insolvent.
In fact, Silbert did far more than this fraudulent omission. He told Gemini that while Genesis's 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 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 faster 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 revealed 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 it can only "work" if it is 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 has sufficient capital to operate as normal in future business. He assured depositors that Genesis is one of the most important parts of the DCG empire, that DCG has big plans for Genesis' future business, and committed to providing Genesis with ongoing support to enable the company to continue to grow.
Matt Ballensweig, Genesis' Managing Director and Co-Head of Transactions and Lending, provided details on Genesis' approximately $1.8 billion in lending to affiliated entities, which had been disclosed in previous Genesis reports. Ballensweig claimed at the time that Genesis had about $922 million in outstanding borrowings from 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 fictitious, 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;
D. reasonable attorneys' fees;
E. Costs of this action;
F. Other Remedies Deemed Just and Appropriate.
The outcome of this case will have important implications for the cryptocurrency industry.
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What does Gemini's legal documents against DCG say?
This week, there was a report on the financial dispute between Gemini and DCG. For details, see "Gemini joint creation "ultimatum", DCG founder's "deadline" has passed?" ".
Today, we will summarize the content of the indictment filed by Gemini against DCG and its CEO Barry Silbert in New York court, and understand the 5 counts of DCG and the 6 major demands of Gemini.
Gemini Founder's Tweet
On June 7, Cameron Winklevoss, one of Gemini’s founders, revealed on Twitter that Gemini filed a lawsuit in New York court against Digital Currency Group (DCG) and its CEO Barry Silbert personally after the warning was invalidated. Gemini accused Barry Silbert of engaging in fraudulent activities 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?
Indictment content
The indictment begins by stating that "Defendants DCG and Silbert engaged in a fraudulent scheme to induce various depositors to continue to lend substantial amounts of cryptocurrency and U.S. dollars to Genesis Global Capital, LLC, a subsidiary of DCG ("Genesis")" , which includes Gemini users for whom Gemini acts as custodian and agent. This action seeks to recover Defendants against Gemini for damages and losses resulting from false, misleading, and incomplete statements and omissions made against Gemini by DCG and Silbert, and by Defendants in encouraging and enabling Genesis' fraud against Gemini play a role.
The style of this indictment is completely different from that of previous legal documents such as SEC and Coinbase. 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 plain language, sometimes even outright venting: "(Genesis's statement) is all lies." 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 vet lenders and concealed losses for lenders
The indictment alleges that DCG and Genesis enticed Gemini's Earn users to borrow heavily from 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 the 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 current situation,” the indictment reads. “Genesis violated its representations regarding risk management and careful scrutiny of counterparties...According to Genesis’ The total value of its collateral was equivalent to 80% of its exposure to 3AC; then-CEO Michael Moro was very clear that these losses would not affect Genesis's business operations: "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 is 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 (via 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 shortfall 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, the 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 wrote on Twitter, "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 expansion of the business." Matt Ballensweig, co-head of lending, assured another Genesis depositor on July 18, 2022: "To date, all losses to 3AC have been absorbed by our parent company, DCG, and Genesis' balance sheet remains sound. , we continue to operate as normal." He added: "DCG directly bears the remaining losses."
So how did DCG actually cover 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 .This allowed Genesis to place the DCG promissory note as an asset on its balance sheet, purportedly “offsetting” its $1.2 billion loss from the 3AC debacle. In reality, however, the fair market value of the promissory note was only 11 A fraction of the face value of USD 100 million. The notes will mature in 10 years, on June 30, 2032, and bear interest at just 1%, 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 did not improve Genesis' immediate liquidity position. From a practical standpoint, the promissory note is merely 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 Financial support needed for loss. (i.e. not repaying Genesis for losses in 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 later became clear that DCG had not actually covered these losses with its own funds, and Genesis remained severely insolvent.
3. DCG and Genesis conspired to falsify financial reports to hide the truth from Gemini and creditors
As an extension of the empty IOU, DCG and Genesis also issued a series of false financial reports with false and misleading statements about Genesis' alleged DCG support, according to the indictment. 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 matures (and is repaid to DCG) after 10 years. The note was clearly not a current 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 defrauded Gemini
This is something that Cameron has mentioned several times on Twitter before, and has even sent an open letter. Defendant Silbert personally took great pains to keep creditors in the dark by continuing to spread the lie that DCG had "absorbed" 3AC's losses, the indictment 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 program, even though Silbert had realized at the time that Genesis was insolvent.
In fact, Silbert did far more than this fraudulent omission. He told Gemini that while Genesis's 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 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 faster 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 revealed 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 it can only "work" if it is 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 has sufficient capital to operate as normal in future business. He assured depositors that Genesis is one of the most important parts of the DCG empire, that DCG has big plans for Genesis' future business, and committed to providing Genesis with ongoing support to enable the company to continue to grow.
Matt Ballensweig, Genesis' Managing Director and Co-Head of Transactions and Lending, provided details on Genesis' approximately $1.8 billion in lending to affiliated entities, which had been disclosed in previous Genesis reports. Ballensweig claimed at the time that Genesis had about $922 million in outstanding borrowings from 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 fictitious, 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;
D. reasonable attorneys' fees;
E. Costs of this action;
F. Other Remedies Deemed Just and Appropriate.
The outcome of this case will have important implications for the cryptocurrency industry.