Gemini Earn Users Pursue Class-Action Arbitration Over Genesis-DCG ‘Sham Transaction’

Three Gemini Earn users are seeking arbitration in a class action lawsuit against crypto broker Genesis and its parent company Digital Currency Group (DCG).

The lawsuit alleges that Genesis attempted to conceal its insolvency via a “sham transaction” involving debt owed by bankrupt crypto hedge fund Three Arrows Capital.

Genesis was the primary partner for Gemini Earn, a service offered by the popular cryptocurrency exchange Gemini, which allowed users to deposit their cryptocurrencies and receive yields of between 0.45% and 8% interest, similar to a bank account.

Withdrawals from the Earn service were shuttered in mid-November, related to financial issues with Genesis involving contagion from the collapsed crypto exchange FTX.

What are the allegations?

The claimants allege that Genesis and DCG breached their contract with them by attempting to conceal their insolvency.

The filing alleges that Genesis first breached this agreement when it first became insolvent in the summer of 2022, saying it then attempted to “conceal its insolvency” by orchestrating a “sham transaction” with its parent company DCG.

In this transaction, DCG allegedly “bought” the right to collect a $2.3 billion debt owed to Genesis by insolvent Singapore hedge fund Three Arrows Capital for a promissory note of $1.1 billion due in 2033.

According to the filing, this failure to cure the insolvency, and “continued representations” that it was not insolvent breached the contract and constituted “Events of Default”, which automatically terminated the loans between the claimants and Genesis, therefore “triggering GGC’s obligation to return claimants’ digital assets.”

In addition to the above charges, the suit also accuses Genesis of engaging in the sale of unregistered securities.

The accusation comes as a similar charge was levied against Gemini Earn in a separate class-action lawsuit filed in late December, which argued that its high-interest crypto-staking services should have been classified as securities.

Gemini and Genesis

It’s not just customers that are piling pressure on Genesis; tensions with crypto exchange Gemini are also heating up.

In an open letter to DCG founder Barry Silbert posted on Twitter, Gemini founder Cameron Winklevoss accused Silbert of “bad faith stall tactics” over $900 million in locked funds reportedly owed to Gemini Earn customers.

In the tweet, Winklevoss alleged that Silbert has so far refused to get “into a room” with Gemini to “hash out a solution,” and that “time is running out” for the company to work with Gemini to “end this nightmare.”