Cameron and Tyler Winklevoss went from Facebook co-creators tricked by Mark Zuckerberg (as dramatized in the movie “The Social Network”) to early adopters of crypto who became “Bitcoin billionaires.” Now their business has been loaded by the United States Securities and Exchange Commission (SEC).
The SEC on Thursday charged the Gemini twins’ cryptocurrency exchange with securities violation charges over its Gemini Earn program, which promised a return to clients who deposited their crypto holdings. Genesis, its lending partner in the program and a subsidiary of Digital Currency Group (DCG), was also loaded in tandem with Gemini.
The charges come after several weeks of increasingly public conflicts between the leaders of Gemini and DCG after the collapse of crypto exchange FTXwhich triggered a new wave of industry contagion if the funds stored on FTX were locked or missing. Genesis would be on the hook for more than that $900 million in Gemini customer funds.
How did we get here ? Here’s a look at the Winklevoss twins’ rapid rise in the crypto industry and recent moves that have led to a public feud between Gemini and DCG, SEC charges, and a seemingly big hole in Gemini’s finances.
The Winklevoss twins received some $65 million in cash and Facebook stock as part of the 2008 settlement over the creation of the social media giant. After establishing the Winklevoss Capital family office in 2012, the brothers began amassing large amounts of Bitcoin. The twins owned as much as 1% of circulating supply of the main cryptocurrency in November 2013, according to the Washington Post.
They went from buying a stash of Bitcoin to leading an investment round in BitInstant, an early Bitcoin exchange whose founder Charlie Shrem was later jailed for money laundering linked to the Bitcoin market. the Silk Road. 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 licensed cryptocurrency exchange in their home state of New York. The platform has grown over the years and acquired NFT Nifty Gateway marketplace in 2019, before the eventual NFT market boom in 2021. Parent company Gemini Space Station was valued at $7.1 billion no later than November 2021.
Cameron and Tyler were first considered “Bitcoin Billionaires” in 2017 (as chronicled in the Book by Ben Mezrich of the same name) as the price of Bitcoin surged to nearly $20,000, and Forbes currently esteems each brother to have a net worth of $1.1 billion.
But with the crypto industry in turmoil over the past few months, Gemini and its founders have faced new challenges. In June 2022, the United States Commodity Futures Trading Commission Charged Gemini “for making materially false or misleading statements” while seeking approval for its Bitcoin futures product, and Gemini laid off 10% of its staff as the crypto market crashed.
Gemini vs. Genesis
A new wave of unrest in the crypto industry triggered the recent Gemini troubles, which began in early November collapse of crypto exchange FTX and sister commercial company Alameda Research.
Shortly after, Genesis announced that it suspend customer withdrawals from its lending arm due to “FTX impact”, citing “unprecedented market turbulence” due to its inability to continue operations as usual. Genesis was Gemini’s partner for its interest-bearing Earn product, and Gemini said it should freeze customer funds as a result.
In December, the FinancialTimes reported that Genesis heroes worth around 900 million dollars or funds from Gemini Earn program clients. Digital Currency Group, which owns Genesis, Grayscale Investments and other crypto companies, is alleged deal with liquidity problemsaccording to Cameron Winklevoss, although founder and CEO Barry Silbert has otherwise insured investors.
In early 2023, the private negotiations between Gemini and Genesis went public when Winklevoss wrote an open letter to Silbert. In the letter, hey accused Silbert of “bad faith stall tactics” to find a solution to the dispute over the funds, suggesting evasive tactics on the part of the head of the DCG. Silvbert denied the charges.
The allegations escalated on January 10 as Cameron Winklevoss called for the resignation of Silbert, suggesting misrepresentation and accounting fraud at the DCG. The the company responded calling Winklevoss’ claims “another desperate and unconstructive publicity stunt” by Gemini’s founders, who he said were “solely responsible for operating Gemini Earn and marketing the program to its clients”.
Gemini then announced that it had officially ended its Earn program, which it claims would require Genesis to repay what it said is more than $900 million in client funds it holds. The program had been running for almost two years in partnership between Gemini and Genesis.
This situation remains unresolved as of this writing, but now both Gemini and Genesis are facing a new obstacle in the form of the SEC charges related to Gemini Earn. The agency alleges that the companies sold unregistered securities to clients, raising billions of dollars worth of crypto from hundreds of thousands of users.
“We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said. “Today’s charges build on previous actions to make it clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws.”
In a reply to a tweetTyler Winklevoss questioned the timing of the charges, saying Gemini had been in discussions with the SEC for 17 months and the program was regulated by the New York Department of Financial Services.
1/ It is disappointing that the @SECGov chose to bring an action today as @Gemini and other creditors are working hard together to recover the funds. This action does nothing to continue our efforts to help Earn users recover their assets. Their behavior is totally counterproductive.
“Despite these ongoing conversations, the SEC chose to announce their lawsuit to the press before notifying us. Super lame,” he tweeted. help us advance the cause of 340,000 Earn users and other creditors.”
He added that “Gemini has always worked hard to comply with all applicable laws and regulations.” Genesis and DCG have yet to comment on the SEC charges.
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