The ongoing dispute between prominent figures in the cryptocurrency industry has attracted the attention of United States investigators who were already conducting financial inquiries into one of the most renowned empires in the sector.
According to a Bloomberg report, the authorities are currently investigating allegations of fraud raised by Cameron Winklevoss, co-founder of the crypto exchange Gemini Trust Co, against the Digital Currency Group (DCG) and its founder, Barry Silbert.
Federal Authorities Look into Winklevoss’s Accusations
Winklevoss had alleged that DCG and Silbert provided misleading information about the financial stability of Genesis, DCG’s lending subsidiary, which filed for bankruptcy in January. Gemini, as the largest creditor of the bankrupt company, also initiated a lawsuit against the crypto conglomerate as well as Silbert.
People familiar with the matter revealed that prosecutors in Brooklyn, Federal Bureau of Investigation (FBI) agents, and US Securities and Exchange Commission (SEC) staff participated in an interview with Winklevoss in recent months to discuss his allegations.
These same sources, who preferred to remain anonymous due to the confidential nature of the investigation, mentioned that the US Attorney’s Office for the Eastern District of New York specifically inquired about Silbert’s conduct.
Genesis has a debt exceeding $3.5 billion owed to its top 50 creditors, with approximately $766 million designated for Gemini customers, according to the former’s Chapter 11 bankruptcy filing from January. Notably, Gemini had previously collaborated with Genesis on its Gemini Earn program, where customers’ cryptocurrencies were lent out to generate returns.
US law enforcement officials are focusing their attention on the $1.1 billion promissory note issued by DCG to Genesis following the collapse of crypto ledge fund Three Arrows Capital (3AC). The scrutiny is also on the information provided by Silbert to investors and other parties regarding this arrangement, according to individuals familiar with the US probe.
Federal prosecutors and regulators have conducted interviews with both former and current Genesis executives, including ex-CEO Michael Moro. Meanwhile, the office of New York Attorney General Letitia James has also sought interviews with former and current Genesis executives in recent months as part of its independent investigation into DCG.
Gemini’s Lawsuit Against DCG
Gemini’s lawsuit filed on July 7 alleged that DCG and Silbert misrepresented the financial stability of Genesis, persuading Gemini Earn customers to remain in the lending program. This was despite DCG and Silbert’s awareness of a billion-dollar deficit in Genesis’s balance sheet, linked to the collapse of 3AC last year, the Winklevoss-led crypto exchange claimed.
In response, DCG filed a motion to dismiss the lawsuit last month.