DCG, a crypto conglomerate, has filed a motion to dismiss a lawsuit brought by cryptocurrency exchange Gemini. The lawsuit alleges that DCG and its founder, Barry Silbert, committed fraud through DCG’s Genesis subsidiary, which held funds for Gemini’s Earn program.
Gemini’s July 7 lawsuit claims that DCG and Silbert misrepresented the financial health of Genesis and induced Gemini Earn customers to continue in the lending program, even though DCG and Silbert were aware that Genesis had a billion-dollar hole in its balance sheet linked to the collapse of Three Arrows Capital (3AC).
In its motion to dismiss, DCG argues that Gemini has not supported its fraud claims with any evidence. DCG also says that Gemini is simply trying to deflect blame for its own mismanagement of the Earn program. Gemini has not yet filed a response to DCG’s motion to dismiss. The Gemini Earn program was launched in February 2021. It allowed Gemini customers to earn yields of up to 7.4% by lending their crypto assets to Genesis. Genesis is a crypto lending firm that is owned by DCG.
The implosion of 3AC in June 2022 had a major impact on Genesis. 3AC was a major client of Genesis, and its collapse left Genesis with a significant hole in its balance sheet. This led Genesis to halt withdrawals from the Earn program in November 2022.
Gemini’s lawsuit alleges that DCG and Silbert knew about Genesis’ financial problems as early as June 2022, but they concealed this information from Gemini customers. Gemini claims that DCG and Silbert continued to promote the Earn program even after they knew that it was at risk. Gemini also alleges that DCG and Silbert assured the Winklevoss twins, the co-founders of Gemini, that DCG had absorbed a $1.1 billion hole left in the Genesis balance sheet caused by the 3AC collapse. However, Gemini claims that this was a lie. The loan, which was a 10-year promissory note at 1% interest, was actually a long-term liability that would not be repaid for many years.
DCG denies all of Gemini’s allegations. DCG says that it did not misrepresent the financial health of Genesis, and that it did not induce Gemini Earn customers to continue in the lending program. DCG also says that it did not assure the Winklevoss twins that DCG had absorbed the $1.1 billion hole in the Genesis balance sheet. DCG says that Gemini’s lawsuit is simply an attempt to deflect blame for its own mismanagement of the Earn program. DCG says that Gemini actively encouraged its customers to lend their crypto assets to Genesis, even though Gemini knew that Genesis was a risky counterparty.
It is unclear what the next steps will be in this case. Gemini has not yet filed a response to DCG’s motion to dismiss. If Gemini does not file a response, then the court may dismiss the case without prejudice. This means that Gemini could refile the lawsuit at a later date. If Gemini does file a response, then the case will likely go to trial. This could take several years. In the meantime, the Earn program remains suspended, and Gemini customers are unlikely to see any of their earnings anytime soon.