Barry Silbert’s DCG Crisis Over Who Owes What Complicated by Who Owns What

DCG, Digital Currency Group

It’s hard to tell who is faring worse, Barry Silbert, or his stable of companies.

The one-time paper billionaire’s wealth has cratered to the mere hundreds of millions, and the crypto empire it staked to, that he spent nearly a decade building, is looking shakier by the day.

This, as Digital Currency Group (DCG), Silbert’s crown jewel, is suspending quarterly dividends to preserve cash, his Grayscale Bitcoin Trust continues trading at a steep discount relative to the actual amount of digital assets it holds, CoinDesk is exploring a sale, and his embattled crypto lending subsidiary Genesis Global Capital is reportedly looking to stave off both bankruptcy and a federal probe.

“This past year has been the most difficult of my life — both personally and professionally,” Silbert wrote in a public letter to DCG’s shareholders. “Bad actors and repeated blow-ups have wreaked havoc on our industry, with ripple effects extending far and wide.”

Compounding these issues, and at the center of Genesis Capital’s own woes, is that Silbert is currently locked into an asset custody battle with Tyler and Cameron Winklevoss, the famous Facebook twins, over $900 million in customer funds they sent from their Gemini crypto exchange to Genesis as part of a joint program. The $900 million represents the collective deposits of some 340,000 Gemini Earn investors, and the twins want it back.

In widely shared open letter, the Gemini founders have accused the DCG head of using “stall tactics, false statements, and misrepresentations” in order to delay repayment of the nearly one billion dollars.

The Winklevoss twins’ Gemini exchange halted withdrawals from its “Gemini Earn” program after lending partner Genesis alleged unprecedented market turmoil following the November collapse of FTX meant it lacked the available liquidity to cover redemption requests from the program.

As reported by PYMNTS, both Gemini and Genesis are presently being charged by the U.S. Securities and Exchange Commission (SEC) companies with offering unregistered securities in relation to their partnership.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said in a statement.

Gemini Earn offered customers returns of “up to 8.05% APY, compounded daily” if they parked their crypto assets in the program — well above what a traditional savings account offers.

Representatives for DCG, Genesis and Gemini have not yet replied to PYMNTS’ request for comment.

Gemini has since terminated its “master loan agreement” with Genesis, in an attempt to force Genesis’ hand in repaying those outstanding assets held in association with the program.

Who Owes What Complicated by Who Owns What

Silbert is a former investment banker whose past experience includes work on Enron’s bankruptcy.

He was an early mover in crypto, reportedly buying his first bitcoin at around the $10-per-coin level over a decade ago in 2012.

His Web3 conglomerate, DCG, was launched in 2015 in part to serve as a Standard Oil-inspired holding company for the 21st century, and capture the sizeable white space advantage being a first mover brings.

But DCG subsidiary Genesis made a series of risky bets over just the past year that include loaning the failed hedge fund Three Arrows Capital (3AC) upwards of $2.36 billion, according to a court filing. That’s in addition to $175 million Genesis later lost as part of FTX’s collapse.

After 3AC’s liquidation, Genesis was left with a $1.2 billion hole tied to its loan.

Parent company DCG stepped up to assume this debt. “DCG has assumed certain liabilities of Genesis related to this counterparty to ensure we have the capital to operate and scale our business for the long-term,” tweeted then-CEO Michael Moro.

As alleged by the Gemini co-founders, DCG did not provide any actual funding — instead supplying Genesis with a 10-year promissory note at an interest rate of 1% that was due in 2032. The Winklevoss twins called Silbert’s approach a “carefully crafted campaign of lies” and a “complete gimmick.”

While the social media-fueled he-said, they-said allegations continue to fly, the intra-company transfers from parent DCG to its subsidiary Genesis are now, as reported by Bloomberg, drawing the attention of federal investigators.

In a letter to shareholders, Silbert emphasized that the self-dealing loans between his various companies were made “in the ordinary course of business.”

Where Things Stand

While the SEC probes both Gemini and Genesis, the owners of the $900 million in funds remain twiddling their thumbs waiting for withdrawals to open back up and their investments to be returned to them.

In another letter to shareholders (Jan. 10), Silbert sought to alleviate any concerns, saying he has “no doubt that DCG will emerge from this year a stronger company than ever before.”

At the start of the year, DCG shut down its wealth management unit HQ. A Thursday (Jan. 19) report from Reuters indicates DCG is reportedly exploring a potential sale of cryptocurrency media company CoinDesk and has retained investment bankers at Lazard to advise on the matter.

CoinDesk published the revelations about FTX that helped trigger the cryptocurrency exchange’s demise and plunged the broader industry into a freefall.

“It has been challenging to have my integrity and good intentions questioned after spending a decade pouring everything into this company and the space with an unrelenting focus on doing things the right way,” DCG’s Silbert said in response to the situation he now finds himself in.