Gemini sued DCG and Barry Silbert over the Genesis Earn collapse

Gemini Trust Company sued Digital Currency Group and its chief executive, Barry Silbert, in New York state court on July 7, 2023, alleging that they fraudulently induced Gemini to continue its Earn lending program despite a financial shortfall at DCG subsidiary Genesis Global Capital.

The filing escalated a dispute that had already moved into bankruptcy court. Genesis suspended withdrawals on November 16, 2022, after the failure of FTX disrupted crypto credit markets, and entered Chapter 11 proceedings on January 19, 2023. Gemini customers who had transferred digital assets through Earn were among the creditors left waiting for repayment.

What Gemini alleged

Gemini’s 33-page complaint accused DCG and Silbert of making false, misleading or incomplete representations about Genesis’s financial condition after crypto hedge fund Three Arrows Capital defaulted in 2022. These were allegations by the plaintiff, not findings by a judge or regulator.

Central to the complaint was Genesis’s approximately $1.1 billion loss associated with Three Arrows. Gemini alleged that DCG did not fill the resulting balance-sheet hole with immediately usable capital. Instead, DCG issued Genesis a roughly $1.1 billion promissory note with a 10-year term. According to Gemini, Genesis then treated that long-dated affiliate receivable in materials presented to counterparties in a manner that obscured its liquidity and solvency problems.

The complaint also alleged that Silbert personally reassured Gemini during an October 20, 2022 meeting that Genesis’s difficulties were primarily a timing mismatch between loans and obligations. Gemini contended that it relied on representations from DCG, Silbert and Genesis when deciding not to terminate Earn sooner.

DCG denied wrongdoing on July 7. In its contemporaneous response, the company described Gemini’s accusations as defamatory and characterized the lawsuit as an attempt to shift responsibility. No court had evaluated either side’s factual account on the filing date.

Why the filing mattered

Earn linked a consumer-facing cryptocurrency exchange to an institutional lending business. Under the program, participating customers transferred crypto assets to Genesis through agreements administered by Gemini and received interest in return. When Genesis froze withdrawals, that structure left customers exposed to the lender’s credit risk rather than protected by an ordinary bank-deposit guarantee.

The lawsuit brought another institutional risk into focus: obligations between affiliated companies. A parent-company promissory note can be an asset on a subsidiary’s balance sheet, but its maturity, enforceability and ability to provide immediate cash matter when depositors or lenders demand repayment. Gemini’s theory was that Genesis’s counterparties received a misleading picture of those distinctions. DCG disputed that theory.

The filing did not itself recover any customer assets, change the priority of claims in the Genesis bankruptcy or establish that DCG or Silbert committed fraud. It opened a separate civil path through which Gemini sought rescission, damages and other relief while bankruptcy negotiations continued.

The event-day boundary

The Securities and Exchange Commission had separately charged Gemini and Genesis on January 12, 2023 with conducting an unregistered offer and sale of securities through Earn. That earlier enforcement action supplied regulatory context but did not adjudicate Gemini’s July claims against DCG and Silbert.

As of July 7, the defensible conclusion was limited: Gemini had converted its accusations into a filed civil complaint, DCG had denied them, and Earn customers remained dependent on litigation and the Genesis restructuring process. Liability, recoveries and the treatment of the promissory note were unresolved.