Gemini to finally pay Earn clients. Is it the end of a 1.5 year-conflict?

by

As a long-term crypto investor who has been closely following the developments between Gemini’s Earn program and Genesis, I am relieved to hear that there is finally progress being made towards resolving this issue. The approval of Genesis’ bankruptcy plan is a significant step in the right direction, and I am hopeful that Gemini will begin issuing refunds to its clients by the end of May as promised.

After being immobile for over a year and a half, the funds of Gemini’s Earn program belonging to clients are now making progress towards a resolution.

On May 17, Judge Sean H. Lane gave his approval for Genesis’ Chapter 11 bankruptcy plan. This green light enables the company to distribute the funds that have been held on their platform since late 2022 for customers. An estimated $3 billion in both cash and crypto assets is set to be returned to creditors.

According to court documents, Gemini will begin issuing refunds to Earn members by the end of May.

As an analyst, I would rephrase it as follows: In my analysis, the ruling on the payment amount stems from the judge’s dismissal of Digital Currency Group (DCG) and Genesis Crypto Creditors’ lawsuit. Previously, DCG had contended that all claims should have been evaluated in U.S. dollars when they filed for bankruptcy in January 2023.

Where it all started

In the year 2020, Gemini and Genesis reached a profitable collaboration agreement. Under this arrangement, Gemini’s American clients were enabled to generate income from their digital assets, with Genesis handling the payments. The Earn program, which commenced in February 2021, has been running smoothly ever since.

Gemini acted as an intermediary between Genesis and private investors.

In November 2022, the cryptocurrency world encountered a major crisis with the sudden collapse of the FTX exchange. This event coincided with a substantial decrease in the values of Bitcoin (BTC) and leading altcoins. At first, FTX users were enticed by promises of returns reaching up to 13%. However, as the market downturn worsened in 2022, Genesis Global Capital was compelled to halt access to client assets.

On November 16, 2022, Genesis announced to its customers that they would need to temporarily halt repayments and receive new loans due to market instability and the failure of FTX. As a result, Gemini had to restrict customer withdrawals from a specific Gemini Earn program. At that point, Genesis owed its clients approximately $900 million on the Gemini platform. The deficit in the company’s financial statements surpassed $1 billion at that time.

Gemini fuels conflicts with renewed vigor

Due to the revelation by Cameron Winklevoss, co-founder of Gemini, the issues surrounding Genesis gained significant attention. He alleged that CEO Barry Silbert of Digital Currency Group (DCG) had employed questionable tactics and postponed the plan to refund $900 million to exchange clients. In addition, he penned an open letter to DCG’s leader, expressing concerns that Gemini had not yet secured a repayment agreement for this debt.

Earn Update: An Open Letter to @BarrySilbert

— Cameron Winklevoss (@cameron) January 2, 2023

Weary earners are at their wit’s end. Fear has taken hold, and for many, their situation has become critical. Despite the hardships they have faced, they have remarkably shown resilience and understanding. However, they have reached their breaking point and can no longer bear much more.

Cameron Winklevoss, Gemini co-founder

I, on behalf of Gemini and its 340,000 users of the Gemini Earn service, made a request to the DCG board for the removal of Silbert. This action was taken due to DCG’s inability to make payments to creditors during his tenure.

The Digital Currency Group X’s representative officially responded to the open letter penned by Gemini’s co-founder.

once again, @cameron is employing an ill-conceived public relations tactic in an attempt to shift responsibility away from Gemini, the entity that runs Gemini Earn and promotes the program to its clientele, who are solely accountable for the operation and marketing of the program.

— DCG (@DCGco) January 10, 2023

I can confirm that our company intends to take all necessary legal steps to safeguard our interests in relation to Genesis’ creditors, while continuing open communications with them.

As a researcher, I would express it this way: “I will persist in maintaining open communication with Genesis and their creditors, striving to reach an amicable resolution that benefits everyone involved.”

DCG statement

Litigations with SEC 

I, as an analyst, would rephrase that sentence as follows: In my analysis, the Securities and Exchange Commission (SEC) filed a lawsuit against Genesis Global Capital LLC and Gemini Trust Company LLC in January 2023, with the allegation being focused on their product, Gemini Earn.

In Manhattan federal court, the Securities and Exchange Commission (SEC) initiated a civil lawsuit against Genesis, alleging that they should have registered Gemini Earn and disclosed comprehensive financial details to their clients regarding this program.

According to Gemini and Genesis, the Gemini Earn Program should not be considered a securities offering based on their argument. Instead, they view it as a straightforward loan agreement. They further maintain that the investment contracts were not resold in the secondary market. Gemini co-founder Tyler Winklevoss has also spoken out against the regulator’s accusations.

I find it disheartening that the Securities and Exchange Commission (SEC) decided to file an action against Gemini today, given that we, along with other creditors, are diligently collaborating to recover the funds. This move does not aid our initiatives and instead hinders the process of returning assets to Earn users. Their actions are counterproductive to our collective goal.

— Tyler Winklevoss (@tyler) January 12, 2023

As an analyst, I would rephrase it as follows: I suggest that the transactions in question could be interpreted as loans. Consequently, the companies involved have petitioned the court to either dismiss the regulator’s lawsuit or propose an alternative resolution – reversing the SEC’s demand for a permanent injunction against their program.

In November 2023, Genesis initiated a legal action against Gemini for a claimed sum of $689 million. Genesis’ legal team argued that the exchange’s leadership had caused harm to other creditors, leading them to file a lawsuit in the bankruptcy court of New York, seeking redress.

Final settlement

In February, I learned that Gemini had reached a settlement with Genesis during its bankruptcy proceedings. If the agreement is approved, every participant in the Gemini Earn program would be able to recover 100% of their digital assets.

As a crypto investor, I’m relieved to hear that the court has approved a repayment plan for Genesis’ outstanding obligations to its creditors last week. Additionally, I was pleased to find out that the challenge against this compensation plan was overruled by the court. The court determined that Genesis’ parent company lacked legal grounds for contesting the arrangement.

What will happen to Genesis after the court’s decision?

As a researcher studying this case, I can explain it this way: The court determined that DCG’s assets were not enough to generate any profit for me as a shareholder after settling the unsecured debts. Given the magnitude of the creditors’ claims, my financial resources as a public company shareholder were drained by billions of dollars despite the use of DCG’s proposed valuation method in the court evaluation.

With Genesis set to deplete almost all available funds in the bankruptcy estate to satisfy senior creditor claims, the prospects for DCG receiving any payment are slim to none. Consequently, the court’s ruling leaves DCG uncompensated and without a pathway towards recovery.

Read More

2024-05-21 20:03