The Winklevii’s Next Act Is Getting Sued for Crypto Fraud
Photo: Joseph Nair/Bloomberg via Getty Images
Ever since Cameron and Tyler Winklevoss settled with Facebook in 2011, they’ve been trying to remake themselves as CEOs with Mark Zuckerberg levels of stature in crypto. Their company, Gemini — they’re twins, get it? — was an exchange, but they were supposed to be on the level and working with regulators. You might have seen the ads on the subway: “The Revolution Needs Rules” and “Crypto Without Chaos.” They were the good guys, played by Armie Hammer before he was outed for his cannibalistic fetishes. When digital currencies exploded in value during the pandemic, Gemini saw an opportunity to make even more money than taking a cut from people buying and selling. The plan was to create high-yield accounts by working with Digital Currency Group, a company run by Barry Silbert — a former investment banker who worked on the bankruptcies of Worldcom and Enron — that owned CoinDesk, the news site, as well as Genesis, a crypto lender. Gemini’s customers would put money into a special account called Earn, which would pay them a high interest rate in exchange for getting lent out by Genesis, who worked with hedge funds.
Of course, this all went wrong. After Sam Bankman-Fried’s exchange FTX collapsed last November, so went Genesis. It turns out, the lender was deeply entrenched with Alameda Research, the hedge fund controlled by Bankman-Fried that fraudulently stole customer funds from FTX. When Genesis went kaput, so did more than $1 billion in Gemini’s customer money. In July, Cameron Winklevoss published an open letter accusing DCG of “fraudulent behavior” by hiding its true financial state from Gemini, and later filed a suit to try to get the money back. Even though the letter sounded like it was written by an undergrad, and even had a “lolwut?” thrown in, it seemed like a plausible accusation. But with Genesis in bankruptcy since January, Silbert brushed it all off as a “publicity stunt.” Last month, it came out that Cameron and Tyler Winklevoss were talking with federal investigators in an apparently separate fraud investigation.
On Thursday, New York Attorney General Letitia James cast a plague on both their houses and filed a 58-page civil suit against Gemini and DCG — as well as Silbert personally — for defrauding 23,000 people, including “a retired 73-year-old grandmother, who invested her and her husband’s life savings of over $199,000.” It is truly a merry-go-round of fraud accusations, and heightened by the criminal fraud suit that’s currently playing out against Bankman-Fried in federal court right now.
The AG’s suit claims there were two different fraud schemes going on. First, there is Gemini, which allegedly lied to its investors. According to the suit, the Winklevoss twins’ story that they were duped by DCG’s Genesis wasn’t exactly true. (To be clear here, neither Cameron nor Tyler is a defendant in the suit.) This starts with the beginning of the Earn program, in February, 2021. Earn would pay investors 7.4 percent by depositing that money with Genesis, which would, theoretically, make even more money by lending out crypto. Gemini boosted Genesis as being “overcollateralized,” even though that was never true, and it had only between 67 cents to 90 cents on the dollar to cover its loans, according to the suit. Regardless, Gemini continued to tell customers that its high-yield Earn program was safe, even after the collapse of Three Arrows Capital and TerraUSD/Luna cryptocurrencies leveled the industry. At one July, 2022 board meeting, Cameron Winklevoss said Genesis was “lying about their financials,” and another board member compared it to Lehman Brothers prior to the investment bank’s collapse — all while continuing to send customer money to Genesis. Even after canceling the relationship with Genesis that September, Gemini still sent money to them until November.
And then there’s DCG’s alleged fraud, which is honestly just wild. Three Arrows’ collapse left a $1.1 billion hole in Genesis’ books, according to the suit. The solution? DCG — Genesis’s parent company — wrote on a piece of paper that it would pay the $1.1 billion back at a one percent interest rate over the next decade, signed it, called it an asset on the DCG balance sheet, and pretended that Genesis had enough money to plug that hole. Silbert personally approved this, James alleges. That piece of paper, called a promissory note, did not, in fact, do anything. According to the AG’s suit, DCG never even made a payment. Of course, it also allegedly went out of its way to conceal this by avoiding pesky questions and removing information from its financial documents that would point to how janky that note really was. “Genesis Capital also omitted explanatory footnotes to its balance sheet because those footnotes would have revealed the Promissory Note’s true nature,” according to the suit. (Soichiro Moro, the CEO of Genesis, was also named as a defendant in the suit.)
What made all of this even more risky was that 60 percent of Genesis’s loans — that is, money funded by Gemini’s Earn customers — was out to Alameda Research, Bankman-Fried’s hedge fund. So when Bankman-Fried’s crypto empire collapsed in November, Genesis wasn’t able to pay back what it owed.
This is a lot of chutzpah. Just a few months ago, the Winklevoss twins were engaging in legal brinkmanship over Genesis’s money, as if all this wouldn’t come out anyway. (The company said it disagrees with the decision to sue, and that it is a victim of fraud too. DCG said it would fight the suit, and Silbert said he was “shocked by the baseless allegations in the Attorney General’s complaint.” )
Maybe it’s not at all surprising that they would be this un-self-aware — these are the same people who think that the message of Rage Against the Machine’s “Killing in the Name” applies to them, after all.
