Crypto exchange Gemini pulled funds from lender Genesis months before bankruptcy filing

Crypto exchange Gemini Trust Co withdrew hundreds of millions of dollars from Genesis Global Holdco several months before the lender froze deposits and ultimately filed for bankruptcy, according to two people familiar with the move.

Genesis and Gemini offered customers in the so-called Earn program the opportunity to generate yields on their crypto tokens. The service let customers of the Tyler and Cameron Winklevoss-owned exchange lend their tokens through Genesis.

In August 2022, Gemini took out about $282 million in cryptocurrency from Genesis, said one of the people, who asked to remain anonymous because they weren’t authorised to discuss private information. The news of the withdrawal was reported earlier by the New York Post.

The funds withdrawn from Genesis were used to build out a reserve intended to ensure Gemini Earn customers could make immediate redemptions, one of the people said. None of the money went directly to Gemini’s billionaire founders, the Winklevoss twins, this person said.

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Genesis did not immediately return a request for comment made outside of normal business hours. Gemini declined to comment.

Days after the collapse of FTX sent the already beleaguered crypto market into a spiral, Genesis froze customer withdrawals. In January, it filed for Chapter 11 bankruptcy protection in New York. Gemini has since filed a claim in the bankruptcy court seeking $1.1 billion on behalf of Earn users.

In the months since the initial withdrawal freeze, Gemini, Genesis and its parent company Digital Currency Group have been locked in settlement negotiations that have included public sparring between DCG’s founder Barry Silbert and the Winklevoss twins.

A tentative agreement reached in February was never finalized. Subsequent, mediated negotiations failed to result in a settlement agreeable to all involved. Then Gemini sued DCG for fraud in July.

In that lawsuit, Gemini said it had sought to terminate Earn in mid-October of 2022, and that one of its founders had a face-to-face meeting with Silbert who sought to assuage any concerns about insolvency. A DCG spokesperson called the lawsuit “a publicity stunt” and rejected any implication of wrongdoing.

Adding to the complexity, Genesis in September sued its parent DCG over $620 million in unpaid loans. DCG declined to comment on Gemini’s withdrawals.

In January, both Genesis and Gemini were hit with charges by the US Securities and Exchange Commission, which alleged that the Earn program represented an unregistered offer and sale of securities. In a post on the platform formerly known as Twitter, Tyler Winklevoss called the charges a “manufactured parking ticket.”

And federal prosecutors in Brooklyn are scrutinizing transfers between DCG and Genesis, Bloomberg reported in January. - Bloomberg