Gemini sues DCG and Barry Silbert for fraud.

The crypto exchange Gemini, led by the Winklevoss twins, has filed a lawsuit against the conglomerate Digital Currency Group (DCG) and its CEO Barry Silbert for allegedly defrauding creditors.

According to the lawsuit, Gemini claims that the DCG CEO committed fraud by attempting to continue the Earn Program even though it was “massively insolvent.”

Gemini, a US-based crypto exchange, is the largest creditor of Genesis, a bankrupt crypto lending firm and subsidiary of DCG.

The lawsuit comes just three days after Cameron Winklevoss proposed that DCG return over $1 billion of its customers’ funds.

Gemini Claims Barry Silbert Knew Genesis Was Insolvent

According to the filing, Gemini notified Genesis in October 2022 that it was terminating the Earn program, but Barry personally convinced Gemini to continue the program.

The lawsuit claims that the DCG CEO did this knowing that Genesis was massively insolvent.

The Winklevoss-owned exchange is now seeking to recover funds incurred as a result of Silbert’s false, misleading, and incomplete representations to Gemini and DCG’s role “in encouraging and facilitating Genesis’s fraud against Gemini.”

The lawsuit further alleges that when Three Arrows Capital (3AC) collapsed in June 2022, it created a $1.2 billion deficit in Genesis’s balance sheet. However, Silbert did not disclose this and instead lied that DCG had absorbed the losses.

“Barry, DCG, and Genesis all conspired to create false financial reports to hide the truth from Gemini and creditors,” Cameron Winklevoss tweeted, sharing the lawsuit in a Twitter thread.

Instead of covering the losses of its subsidiary as it informed Gemini, DCG issued Genesis a 10-year promissory note with a 1% interest rate, which is only worth a fraction of its $1.1 billion face value, as revealed in the lawsuit by a Gemini co-founder.

The lawsuit does not come as a surprise, as the US-based exchange had repeatedly warned DCG of legal action if the issue was not resolved.

US SEC Is Suing Gemini For Its Earn Program

In January, the US Securities and Exchange Commission (SEC) filed a lawsuit against Gemini and Genesis for allegedly offering unregistered securities through the Earn program.

The New York State Department of Financial Services was also investigating Gemini’s claims about the assets in its Earn lending program.

Apparently, many Gemini users believed that the assets in their Earn accounts were protected by the Federal Deposit Insurance Corporation.

As previously reported in May, Gemini and Genesis requested the court to dismiss the lawsuit brought by the US SEC.