Cameron and Tyler Winklevoss went from being the co-originators of Facebook deceived by Mark Zuckerberg (as dramatized within the film “The Social Network”) to early crypto adopters who became “Bitcoin billionaires.” Now their firm has been charged by the USA Securities and Exchange Commission (SEC).
The SEC hit the twins’ cryptocurrency exchange Gemini with charges of securities violations on Thursday because of its Gemini Earn program, which promised a return to customers who deposited their crypto holdings. Genesis, its lending partner in this system and a subsidiary of Digital Currency Group (DCG), was also charged in tandem with Gemini.
The costs come after several weeks of increasingly public disputes between Gemini and DCG leadership following November’s collapse of crypto exchange FTX, which triggered a fresh wave of industry contagion as funds stored on FTX were either locked away or missing. Genesis is reportedly on the hook for greater than $900 million value of Gemini customer funds.
Winklevoss Demands DCG CEO Barry Silbert Step Down, Alleges Accounting Fraud
How did it come to this? Here’s a take a look at the Winklevoss twins’ rapid rise within the crypto industry and the recent moves that led to a public spat between Gemini and DCG, the SEC charges, and an apparently vast hole in Gemini’s funds.
Founding Gemini
The Winklevoss twins received some $65 million in money and Facebook stock within the 2008 settlement over the creation of the social media giant. After establishing family office Winklevoss Capital in 2012, the brothers began amassing large amounts of Bitcoin. The twins owned as much as 1% of the circulating supply of the leading cryptocurrency as of November 2013, in keeping with the Washington Post.
They went from buying up a stash of Bitcoin to leading an investment round in BitInstant, an early Bitcoin exchange whose founder Charlie Shrem was later imprisoned for money laundering related to the Silk Road marketplace. Also that 12 months, the twins attempted to launch the first-ever Bitcoin ETF (or exchange-traded fund), which was rejected by the SEC.
In 2015, the Winklevoss brothers opened Gemini, a cryptocurrency exchange licensed in its home state of Recent York. The platform expanded through the years and bought NFT marketplace Nifty Gateway in 2019, ahead of the eventual NFT market boom in 2021. Parent company Gemini Space Station was valued at $7.1 billion as of November 2021.
Cameron and Tyler were deemed “Bitcoin billionaires” for the primary time in 2017 (as chronicled within the Ben Mezrich book of the identical name) as Bitcoin’s price surged to almost $20,000, and Forbes currently estimates each brother to have a net value of $1.1 billion.
But with the crypto industry in turmoil over the past several months, Gemini and its founders have faced recent challenges. In June 2022, the U.S. Commodity Futures Trading Commission charged Gemini “for making material false or misleading statements” because it sought approval of its Bitcoin futures product, and Gemini laid off 10% of its staff because the crypto market tumbled.
Gemini vs. Genesis
A fresh wave of crypto industry turmoil sparked Gemini’s recent troubles, kick-started by the early November collapse of crypto exchange FTX and sister trading firm Alameda Research.
Soon after, Genesis announced that it will suspend customer withdrawals from its lending arm because of the “FTX impact,” citing “unprecedented market turmoil” in being unable to proceed business as usual. Genesis was Gemini’s partner for its interest-bearing Earn product, and Gemini said that it will should freeze customer funds because of this.
Gemini’s Winklevoss Slams DCG CEO Silbert for ‘Bad Faith Stall Tactics’ Over $900M in Locked Funds
In December, the Financial Times reported that Genesis held some $900 million value of customer funds from the Gemini Earn program. Digital Currency Group—which owns Genesis, Grayscale Investments, and other crypto firms—is allegedly coping with liquidity problems, in keeping with Cameron Winklevoss, although founder and CEO Barry Silbert has assured investors otherwise.
At the beginning of 2023, the private negotiations between Gemini and Genesis spilled into public when Winklevoss penned an open letter to Silbert. Within the letter, he accused Silbert of “bad faith stall tactics” towards finding a resolution to the dispute over the funds, suggesting evasive tactics on the a part of the DCG head. Silbert denied the accusations.
Gemini Officially Terminates Crypto Earn Program Amid DCG, Genesis Spat
The allegations intensified on January 10 as Cameron Winklevoss called for Silbert’s resignation, suggesting misrepresentation and accounting fraud at DCG. The company responded by calling Winklevoss’ claims “one other desperate and unconstructive publicity stunt” on the a part of the Gemini founders, which it said were “solely answerable for operating Gemini Earn and marketing this system to its customers.”
Gemini then announced that it had officially terminated its Earn program, which it said would force Genesis to pay back what it said is over $900 million value of customer funds that it holds. This system had operated for nearly two years in partnership between Gemini and Genesis.
SEC charges
That situation stays unresolved as of this writing, but now each Gemini and Genesis each face a brand new hurdle in the shape of the SEC charges related to Gemini Earn. The agency alleges that the firms sold unregistered securities to customers, raising billions of dollars’ value of crypto in the method from a whole lot of hundreds of users.
SEC Hits Genesis, Gemini With Securities Law Violations for Gemini Earn Program
“We allege that Genesis and Gemini offered unregistered securities to the general public, bypassing disclosure requirements designed to guard investors,” SEC Chair Gary Gensler said. “Today’s charges construct on previous actions to clarify to the marketplace and the investing public that crypto lending platforms and other intermediaries have to comply with our time-tested securities laws.”
In a tweet response, Tyler Winklevoss questioned the timing of the fees, saying that Gemini had been in discussions with the SEC for 17 months and that this system was regulated by the Recent York Department of Financial Services.
“Despite these ongoing conversations, the SEC selected to announce their lawsuit to the press before notifying us. Super lame,” he tweeted. “It’s unlucky that they’re optimizing for political points as an alternative of helping us advance the explanation for 340,000 Earn users and other creditors.”
He added that “Gemini has at all times worked hard to comply with all relevant laws and regulations.” Genesis and DCG have yet to comment on the SEC charges.