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Cameron and Tyler Winklevoss went from being the co-founders of Facebook tricked by Mark Zuckerberg (as dramatized in the movie “The Social Network”) to early crypto adopters who became “Bitcoin billionaires.” Now their company has been charged by the United States Securities and Exchange Commission (SEC).
The SEC hit twin cryptocurrency exchange Gemini with securities violations charges on Thursday over its Gemini Earn program, which promised a return to customers who deposited their crypto holdings. Genesis, its lending partner in the program and a subsidiary of Digital Currency Group (DCG), was also charged along with Gemini.
The charges come after several weeks increasingly public disputes between Gemini and the DCG management after November’s collapse of crypto exchange FTXwhich triggered a new wave of industrial contagion as funds stored on FTX were either locked or missing. Genesis is reportedly on the hook for more than Gemini customer funds worth $900 million.
How did it come to this? Here’s a look at the Winklevoss twins’ rapid rise in the crypto industry and the recent moves that led to a public spat between Gemini and DCG, the SEC charges, and an apparently huge hole in Gemini’s finances.
Founder Gemini
The Winklevoss twins received about $65 million in cash and Facebook stock in the 2008 settlement over the creation of the social media giant. After establishing the family office Winklevoss Capital in 2012, the brothers began to accumulate large amounts of Bitcoin. The twins owned as much as 1% of the circulating supply of the leading cryptocurrency in November 2013, according to Washington Post.
They went from buying up a piece of Bitcoin to leading an investment round in BitInstant, an early Bitcoin exchange whose founder Charlie Shrem was later jailed for money laundering related to the Silk Road market. Also that year, 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 their home state of New York. The platform expanded over the years and made acquisitions NFT the Nifty Gateway marketplace in 2019, ahead of the eventual NFT market boom in 2021. Parent company Gemini Space Station was valued at $7.1 billion from November 2021.
Cameron and Tyler were considered “Bitcoin billionaires” for the first time in 2017 (as described in Ben Mezrich book of the same name) as Bitcoin’s price rose to nearly $20,000, and Forbes currently estimating each brother to has a net worth of $1.1 billion.
But with the crypto industry in turmoil in recent months, Gemini and its founders have faced new challenges. In June 2022, the US Commodity Futures Trading Commission charged Gemini “for making materially false or misleading statements” when it sought approval of its Bitcoin futures product, and Gemini laid off 10% of employees when the crypto market fell.
Gemini vs. Genesis
A new wave of turmoil in the crypto industry triggered Gemini’s recent troubles, starting in early November collapse of crypto exchange FTX and sister trading firm Alameda Research.
Soon after, Genesis announced that it would suspend customer withdrawals from the lending arm due to the “FTX effect”, citing “unprecedented market turmoil” in not being able to continue business as usual. Genesis was Gemini’s partner for the interest-bearing Earn product, and Gemini said it had to freeze customer funds as a result.
In December was Financial Times reported that Genesis held at a value of around 900 million dollars of customer funds from the Gemini Earn program. Digital Currency Group – which owns Genesis, Grayscale Investments and other crypto firms – is reportedly deal with liquidity problemsaccording to Cameron Winklevoss, although founder and CEO Barry Silbert has assured investors otherwise.
In early 2023, the private negotiations between Gemini and Genesis became widely public when Winklevoss wrote an open letter to Silbert. In the letter he says accused Silbert of “bad faith stall tactics” towards finding a solution to the dispute over the funds, and suggests evasive tactics on the part of the DCG leader. Silbert denied the allegations.
The charges were intensified on January 10 as Cameron Winklevoss called for Silbert’s resignation, which suggests misrepresentation and accounting fraud at DCG. The the company responded calling Winklevoss’ claims “another desperate and unconstructive publicity stunt” by the Gemini founders, who they said were “solely responsible for operating Gemini Earn and marketing the program to their customers.”
Gemini then announced that it had officially done so ended its Earn program, which it said would force Genesis to repay what it said is more than $900 million worth of customer funds it holds. The program had operated for almost two years in cooperation between Gemini and Genesis.
SEC fees
That situation is still unresolved at the time of writing, but now both Gemini and Genesis both face a new obstacle in the form of SEC Fees Related to Gemini Earn. The agency alleges the firms sold unregistered securities to customers, collecting billions of dollars worth of crypto in the process from hundreds of thousands of users.
“We allege that Genesis and Gemini offered unregistered securities to the public, outside of disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said. “Today’s charges build on past actions to make clear to the market and investors that crypto-lending platforms and other intermediaries need to comply with our time-tested securities laws.”
IN a tweet replyTyler Winklevoss questioned the timing of the allegations, saying that Gemini had been in discussions with the SEC for 17 months and that the program was regulated by the New York Department of Financial Services.
“Despite these ongoing talks, the SEC chose to announce their lawsuit to the press before notifying us. Super lazy,” he tweeted. “It’s unfortunate that they’re optimizing for political points instead of helping us make the case to 340,000 Earn users and other creditors.”
He added that “Gemini has always worked hard to comply with all relevant laws and regulations.” Genesis and DCG have yet to comment on the SEC allegations.
