Winklevoss Twins Accuse Crypto Mogul Silbert of Delaying Release of Frozen Funds

Cameron Winklevoss, co-founder and president of digital currency exchange Gemini, has accused the head of crypto conglomerate Digital Currency Group of engaging in "bad faith" tactics. However, he insists that he wants to resolve a complex lending dispute with the company that emerged in the wake of FTX's collapse.

The disagreement arises from a deal Gemini has with Genesis Global Capital, the lending arm of crypto investment firm Genesis Global Trading. Gemini offered users yields of up to 8% through its lending product, Gemini Earn. To generate those returns, Gemini lent users’ funds to Genesis Global Capital, which in turn loaned them out to institutional borrowers.

A few days after FTX filed for bankruptcy, Gemini paused redemptions for its Gemini Earn service. This was due to Genesis Global Capital also suspending new loan originations and redemptions. Gemini has denied any exposure to Sam Bankman-Fried's crypto empire. However, Genesis said in a Nov. 10 tweet that its derivatives business has roughly $175 million in funds locked inside FTX.

Winklevoss on Monday penned an open letter to Digital Currency Group boss Barry Silbert, alleging Silbert refused to meet with the Gemini team on multiple occasions to find a resolution to the liquidity crisis facing clients of Gemini Earn.

Winklevoss claims that Silbert has refused to meet with the Gemini team on multiple occasions to discuss a resolution to the liquidity crisis facing Gemini Earn clients.

The letter states that Gemini Earn clients are owed more than $900 million from Genesis.

"We have been working hard for the past six weeks to try to reach a resolution with you on repaying the $900 million you owe, while also helping you to keep your business afloat," Winklevoss said in a letter that was tweeted out publicly on Monday.

We understand that there may be some initial costs associated with restructuring, and that things may not always move as quickly as we would like. However, it is becoming increasingly apparent that you have been deliberately delaying progress.

Winklevoss said that Silbert is hiding behind "lawyers, investment bankers, and process." He also alleged that Digital Currency Group and Genesis are "beyond commingled."

Digital Currency Group owes Genesis $1.675 billion. The debts consist of a $575 million liability due in May 2023, and a $1.1 billion promissory note Genesis issued to Three Arrows Capital. Digital Currency Group absorbed Three Arrows Capital following the controversial crypto hedge fund’s collapse.

"You are entirely responsible for this mess. Your company, Digital Currency Group (DCG), owes its subsidiary, Genesis, around 1.675 billion dollars. As the founder and CEO of DCG, this is your mess to clean up."

"Genesis owes Earn users and other creditors a lot of money. You used this money to buy back shares, invest in risky ventures, and trade Grayscale NAV, which made you a lot of money. This came at the expense of creditors and was all for your own personal gain."

Digital Currency Group also owns Grayscale, which is facing difficulties with its Grayscale Bitcoin Trust trading at a 45% discount to the price of bitcoin.

"DCG did not borrow $1.675 billion from Genesis," Silbert said in reply to Winklevoss' tweet Monday. He added that the company is "fully funded and does not need to borrow any money."

"DCG has always made its interest payments to Genesis on time and is current on all outstanding loans," he added. "DCG delivered a proposal to Genesis and your advisors on December 29th, but we have not received any response."

Winklevoss said that he wants to reach a solution to the liquidity crunch by Sunday, despite the fiery exchange. He stated that time is running out, but that he remains ready and willing to work with the other party.

A spokesperson for Gemini declined to comment further when contacted by CNBC.

Winklevoss's accusations against Silbert come as his crypto exchange Gemini faces legal threats from users. A group of investors has filed a class-action lawsuit against the company, alleging that it sold its Earn interest-bearing accounts without first registering them as securities. Crypto lender BlockFi has been forced to pay the Securities and Exchange Commission and 32 states $100 million in penalties to settle charges that its retail lending product violated U.S. securities laws.

Zhu Su, co-founder of Three Arrows Capital, also commented on the situation on Tuesday. In a Twitter thread, Su said that Digital Currency Group had suffered significant losses when terraUSD, an algorithmic stablecoin, collapsed. Su's own company also went bankrupt after making risky bets across the industry. Su has been active on Twitter even as lawyers seek to establish his whereabouts, and he reportedly faces investigations from U.S. regulators.

Gemini and Genesis are the latest firms to get caught up in the messy, entangled contagion resulting from FTX's fall into bankruptcy last year. This bankruptcy has created a domino effect, causing problems for these other companies. It is unclear how this will all shake out, but it is clear that FTX's bankruptcy has had a ripple effect on the entire industry.

In a November interview, Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute, said that industry contagion is expected to be widespread. He explained that anyone in the crypto space or beyond could have been exposed to the virus one way or another. Wintermute itself had funds trapped in FTX, but according to a Nov. 9 tweet, the amount was within the company's risk tolerances and did not have a significant impact on its overall financial position.