Crypto exchange Gemini lays off another 10% of its staff due to its tussle with Genesis over Gemini Earn. According to Mark Pfeiffer, bankruptcy attorney at Buchanan Ingersoll & Rooney, Earn investors wouldn’t be able to recover their funds for a long time.
On Thursday January 19, Genesis Global Capital filed for Chapter 11 bankruptcy in the Southern District of New York. Before filing, Genesis had been in negotiations with creditors where they offered cash payments and equity in DCG to have enough funds for a restructuring.
The bankruptcy filing revealed that crypto exchange Gemini was a major creditor of Genesis, with a $766 million loan outstanding. Upon the news of the bankruptcy, Cameron Winklevoss threatened to take legal action against Silbert and DCG “and others who share responsibility for the fraud that has caused harm to the 340,000+ Earn users and others duped by Genesis and its accomplices.”
“Even if the court sides with Gemini, that they did everything right and has a claim, that doesn’t mean the Gemini creditors get paid, because this is bankruptcy,” Pfeiffer said. “There’s not always enough money to go around.”
Crypto exchange Gemini is about to go into its third round of layoffs since June 2022.
According to a Monday internal staff message on Slack, crypto startup Gemini is laying off 10% of its staff.
“It was our hope to avoid further reductions after this summer, however, persistent negative macroeconomic conditions and unprecedented fraud perpetuated by bad actors in our industry have left us with no other choice but to revise our outlook and further reduce headcount,” Gemini President Cameron Winklevoss wrote.
Gemini has been involved in crypto lender Genesis Global Capital’s woes, where the company has been unable to pay out funds to its Earn account holders – an interest-earning product from Gemini and Genesis.
Gemini declined to comment on the current matter.
June 2022 marked Gemini’s first big wave of layoffs, where 10% of its staff had to leave, following with more layoffs in July. According to reports, Gemini’s staff headcount was at around 1,100 at the start of 2022, and at the end of the year kept between 650 to 700 people.
The ongoing crypto winter has forced other crypto companies, including Coinbase, Crypto.com, Blockchain.com, and ConsenSys to lay off their staff. It is estimated that approximately 27,000 jobs in the crypto industry have been lost since April 2022.
What’s going on with crypto exchange Gemini and lender Genesis and Earn?
Beginning February 2021, Gemini and Genesis’ yield-generating Earn program promised to pay back as much as 8% of interest rates to depositors. Customer funds in Earn were loaned to Genesis, and would make loans to institutional investors to create the yield.
But from mid-November 2022, Digital Currency Group’s (DCG) Genesis Global Capital, in their role as Earn’s lending partner, paused withdrawals in the wake of FTX’s collapse. A blog post from Gemini notes that the lender was not able to meet Earn’s user redemption requests within 5 business days, detailed in its service-level agreements (SLA). Since then, Earn customers were not able to access their funds.
As of writing, there are approximately 340,000 investors enrolled in the Earn program, with $900 million of assets trapped in limbo, and Gemini losing trust in Genesis.
A court filing on January 10 reveals that Gemini dissolved a master loan agreement between its Earn customers and Genesis, and would theoretically force Genesis to return outstanding assets – prompting even further conflict between the two firms.
Last week, the US Securities and Exchange Commission (US SEC) filed a complaint against Gemini and Genesis with claims that the Earn program offered unregistered securities, therefore violating US securities laws.
Amidst the proceedings, SEC Chairman Gary Gensler tweeted “Crypto intermediaries need to comply with our securities laws. This protects investors. It promotes trust in markets. It’s not optional. It’s the law.
We @SECGov charged Genesis & Gemini for the unregistered offer & sale of crypto asset securities through Gemini Earn.
Crypto intermediaries need to comply with our securities laws. This protects investors. It promotes trust in markets. It’s not optional. It’s the law.
— Gary Gensler (@GaryGensler) January 12, 2023
Gemini co-founder Tyler Winklevoss tweeted that the SEC charges were made public without notice, calling the behaviour “super lame,” and counterproductive to helping users get their assets back.
3/ Despite these ongoing conversations, the SEC chose to announce their lawsuit to the press before notifying us. Super lame. It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of 340,000 Earn users and other creditors.
— Tyler Winklevoss (@tyler) January 12, 2023
Meanwhile, Cameron Winklevoss tweeted an open letter to Barry Silbert, founder of Genesis‘s parent company Digital Currency Group, placing the blame on Genesis for the current situation.
Earn Update: An Open Letter to @BarrySilbert pic.twitter.com/kouAviTho4
— Cameron Winklevoss (@cameron) January 2, 2023
According to Mark Pfeiffer, bankruptcy attorney at Buchanan Ingersoll & Rooney, Earn investors wouldn’t be able to recover their funds for a long time.
On Thursday January 19, Genesis Global Capital filed for Chapter 11 bankruptcy in the Southern District of New York. Before filing, Genesis had been in negotiations with creditors where they offered cash payments and equity in DCG to have enough funds for a restructuring.
The bankruptcy filing revealed that Gemini was a major creditor of Genesis, with a $766 million loan outstanding. Upon the news of the bankruptcy, Cameron Winklevoss threatened to take legal action against Silbert and DCG “and others who share responsibility for the fraud that has caused harm to the 340,000+ Earn users and others duped by Genesis and its accomplices.”
“Even if the court sides with Gemini, that they did everything right and has a claim, that doesn’t mean the Gemini creditors get paid, because this is bankruptcy,” Pfeiffer said. “There’s not always enough money to go around.”
