How The Winklevoss Twins Lost A Billion Dollars

the cryptocurrency markets in the process. He did so by creating a cryptocurrency exchange called ftx, where people could buy things like bitcoin and ethereum, except it had one little catch. He was stealing the customer funds, keeping only a little around at any given time for people to withdraw. This meant that when hundreds of thousands of people went to withdraw their funds at once, the entire scheme fell apart

and FTX collapsed. Bankman Fried currently sits in prison awaiting sentencing after being convicted and several counts of fraud, including wirefraud and wirefraud conspiracy, which is appropriate as him and his co conspirators at one point genuinely used their group called wirefraud Chat and I am not kidding yet. This

isn't about SBF. There are actually two other villains in this story, two villains of the recent crypto crash that you might have missed, despite the fact that they're both six foot five and lost their customers over a billion dollars. I'm talking about Cameron and Tyler Winklevoss, two brothers, both alike in dignity and appearance, the gay notoriety by suing Mark Zuckerberg of Facebook now known as Metta in the early days of the social network back in two thousand

and four. In the Winklevi's defense, Zuckerberg dig screw them as a student at Harvard, where he pretended to work on the Winklevoss's social network, Harvard Connect while actually working on the earliest version of Facebook, effectively sabotaging the competition

from within. When Facebook finally launched the identical Moist, Riverboat Giants alleged that Zuckerberg had stolen their idea for a social network and used their code, resulting in a year's long back and forth and a sixty five million dollar settlement that the Winklevosses were forced by a court to accept.

In twenty eleven, I think the had Zuckerberg kept his filthy little hands to himself, we'd likely never have heard of Tyler and Cameron Winkelvoss, and I believe the world would have been a better place if they weren't already. The Winklevoss twins were now millionaires. In twenty ten, Aaron Sorkin's Oscar nominated retelling of the Facebook origin story the social network would raise their profiles even further, portraying them

as victims of a calculated, misanthropic opportunist, Mark Zuckerberg. Of course, you could almost feel sorry for them, even if they were portrayed by Armie Hammer, the famous cannibalism fan and potentially perverted in enjoyer of other things too. But you really shouldn't feel sorry for Army Hammer. But you definitely

shouldn't for the Winklevosses either. In the years following their legal dust up with Mark Zuckerberg, the Winklevoss twins remained active in the tech scene, launching an investment fund in twenty twelve that focused on early stage, consumer centric startups. A year later, they acquired eleven million dollars of bitcoin,

and while it's unclear exactly how much they bought. A New York Times article about their acquisition, which of course featured no verification of that actual purchase, ran on April eleventh, twenty thirteen, when bitcoin was around one hundred and fourteen dollars apiece, meaning that the Winklevoss brothers likely bought somewhere in the region of ninety thousand bitcoin. Based on today's valuation, those holdings would be worth an excess of three point

eight billion dollars. It was a big, stupid bet, and it absolutely paid off. In the same year, they'd pursue creating a bitcoin exchange traded fund also known as an ETF, a thing that allows you to invest in something, in this case bitcoin, much like you would trading a stock, without all of the complexity and risk associated with actually

owning the thing in question, in this case bitcoin. While this never materialized, the winklevoss Is cozied up with New York's Department of Financial Services and realized they could found their own cryptocurrency exchange to rival the other American rival, Coinbased, which had launched two years earlier. A cryptocurrency exchange, as I've discussed, is a place where you can buy and sell your crypto using generally a credit card or a

debit card. At the time very focused on debit cards, though in twenty fifteen they launched Gemini, what would eventually become a major and highly respected cryptocurrency exchange that from the very beginning tried to swaddle its ugly and often fraudulent industry in a blanket of legitimacy, winning approval from New York state regulators to provide certain financial services. Gemini now sits as one of the top ten largest cryptocurrency exchanges in the world and one of the few remaining

American exchange. One might be forgiven for thinking they were trustworthy, and they'd be wrong. Toward the end of twenty twenty, the price of cryptocurrencies began to climb rapidly, with bitcoin climbing from nineteen thousand dollars in December to over forty thousand dollars in January, cresting over fifty thousand dollars a

bitcoin by March twenty twenty one. The cryptocurrency industry would see more venture investment in the first quarter of twenty twenty one than it had in the entirety of twenty twenty, with one hundred and twenty nine crypto and blockchain startups receiving two point six billion dollars in the space of three months, compared to three hundred and forty one cryptocurrencies receiving two point three billion in the entirety of twenty twenty.

As an explanation for those listeners that don't know, venture capital investments are generally investing inequacy in the companies. They buy a piece of the company for a certain amount of money, venture capitalists, of course, taking the risk that the company will fall apart. What differs with a lot of these companies is that they will sometimes sell you

a token. This isn't necessarily relevant for this story. I just want you to know the fact that this industry at its core is based on the idea of basically selling securities, you know, like stocks, but hiding from the law and conning people. That's not how the Winklevosses fucked people over, though, no. So another thing to realize about these crypto companies is that they didn't really do anything. They'd sell tokens. They would claim that they would build

something in the future on something called a roadmap. They would sometimes have a white paper which would describe some underlying technological stuff. But there are really none of them that had a feature or a function. They were mostly just nonentities that promise things. But because you could trade their tokens, which much like a stock, should have been regulated by the government, but were not because they were

such new financial devices and objects. Well, this whole market was growing and growing and growing, and along with it, the Winklevosses were getting even richer. Then they got greedy. To understand how the Winklevosses bungled a billion dollars, I have to give you a little bit of background on the last few years of hell in the cryptocurrency industry. In February twenty twenty one, Gemini, that's their cryptocurrency exchange where you could buy and sell different cryptocurrency began something

called Earn, their Earn program. It was an interest earning program where users could feed their cryptocurrency like Bitcoin, for example, into Gemini through a few clicks and earn interest. And you should put quotation marks around those so you would get a percentage return on the crypto that you put into Gemini Earn. One might be forgiven for believing that as a result, they were putting money into some sort

of secure protected account like a certificate of deposit. They really were not, I must be clear, how not like a bank. This was Gemini, a New York based trust company that promised to security protocols on par with those offered by top financial institutions. Claimed to generate this interest by working with and I quote institutional borrowers who were partners who had been vetted through Gemini's and I quote

again risk management framework. What's also important to know is that none of what you're about to hear was the security issue. It was entirely the result of two greedy riverboat giants pissing away money because they were greedy little pigs.

And as a result of trusting this company that was a trust company, a New York based trust company, a regulated one allegedly, but not regulated for the thing that I'm about to tell you, people trusted them, and as a result, customers deposited somewhere between seven hundred million and a billion dollars of funds into Gemini Earn, believing that Gemini was offering something akin to an interest generating savings account. After all, Gemini had institutional partners, and that is plural.

That's what they said and they had vetted said partners through their collateralization management process, which means, in the case of a loan, you collateralize the loan, you give them something. For example, you would collateralize the loan for a house by giving them a down payment of twenty percent. In the case of a loan, you might borrow a certain amount of money, but put some money down so they have something in the event that you default on the loan.

In plain English, they were claiming to work with institutional investors like banks and hedge funds that would pull Gemini earn customers, so people giving them their Bitcoin ethereum and all that they would pull those resources to allow them to get involved in big trades with better returns than users will be able to get on their own. Indeed, classical financial markets have larger loans that have preferential rates and get involved in deals that the regular customer would

not be able to. That's what people thought they were getting. The other suggestion was that Gemini had diversified its risk and there's actually an archived version of the Gemini earned Patron twenty twenty one that said that Gemini worked with multiple accredited party borrowers to do so. As a result, as a customer, you may believe, well, if one fails,

that won't be the end of the world. Right. It's also important explaining that the way that a lot of these companies in crypto made their money was by loaning it to others in the form of margin trading, where investors, both retail and institutional, borrowed a massive amount of cryptocurrency in returned for collateral which was usually less than the amount they were borrowing. As I mentioned, kind of like putting a damn payment for a house, except the asset

is a token on a blockchain like bitcoin. In fact, as you'll find out, most of the cryptocurrency industry was held up by these loans. Now, all of this supposedly legal and cool and normal stuff. All this sounded very trustworthy. This was, of course not the case. Neither was it the case that Gemini had diversified their investments at all,

or actually really any risk management of any kind. Although Gemini had the outward appearance of being a highly diversified, sophisticated and well run financial services business, it actually wasn't. They placed the vast majority of their eggs in one single basket, and that was a cryptocurrency brokerage called Genesis. Genesis provided a variety of cryptocurrency related services for large

institutional investors and high net worth individuals. Their money was made by offering these institutions and individuals loans leveraged by their cryptocurrency, which Genesis would in turn invest, theoretically profiting in the process through their access to large deals. As I previously mentioned, when I say leverage, I mean the very simple thing of I give you some money and then you lend me money in return, and there is usually some sort of interest deal, or there is some

way where both parties benefit. Sometimes it will be that they are borrowing an asset like bitcoin. The price can change, then the collateral they give maybe an excess of the amount they're borrowing in dollars, but the price of bitcoin

may go down. Thus, as a result, if I loaned somebody a billion dollars a bitcoin, but the price of bitcoin went down and they gave me, I don't know, one point something billion in return, They're gambling the idea that bitcoin will go up from there, and I'm gambling that it will go down, and I would have made money on that loan. This is a messy stupid assholes industry one built on sand and you're about to find

out how badly it can go. So Genesis was also part of a huge empire called the Digital Currency Group, a holding company for multiple different parts of the cryptocurrency ecosystem, including cryptocurrency news outlet coin Desk, which ironically was a large part of the reason that Sam Bankman Freed has gone to prison. I could do an entire episode on this company, but all you really need to know is that they own Genesis, and while Genesis was meant to

be independent, it absolutely was not. And what's really important to know is how stupidly Genesis was run. They weren't simply bad at investing. They were so bad at investing that they somehow managed to invest in not one, but two of the entities that brought down the entire cryptocurrency

industry in twenty twenty two. Their first mistake was investing two point four billion dollars in Three Arrows Capital, a major cryptocurrency hedge fund that ended up being a significant scam that also led to the collapse of FTX, the other entity that Genesis had trusted with its capital, and again that's the subject of another episode. Three Arrows Capital was a Singapore based cryptocurrency hedge fund with over a

decade worth of history. Run by two guys. It started life in arbitrage, essentially making money on the differences in prices of products in two separate locations, with a niche in smaller traditional currencies like the ty bart and the Indonesian Rupia. This business model often relied on a healthy relationship with legacy banks. We had some success on that front. It's relationship soured in twenty seventeen, forcing the company to

pivot to the wild West of cryptocurrency. It started investing its client's money in early stage crypto projects, hoping for a big return when their values went up. One of these projects was terror Lunar, an algorithmic stable coin which, in plain English is meant to be a cocoon on the Ethereum blockchain that is always related to the price of a dollar, except in this case. You may have

heard that word algorithmic. You know what The problem with algorithms is they need to be perfect in they almost never are. But this bit kind of requires some explanation, so bear with me. Cryptocurrencies like Bitcoin and Ethereum, they're wildly volatile, which is bad if you want to actually transact with them. If a currency could be twenty five percent more or less the next day, how do you actually know what to charge for something? And that's where

stable coins come in. These are cryptocurrencies that aim to fix their value to that of a traditional fiat currency like the US dollar or the Euro. Most stable coins have, or say they have, at least a cash reserve equivalent to the amount of tokens in circulation. Terror Lunar differed using an algorithm to maintain price parity rather than any reserves. The algorithm worked until it suddenly and violently did not. On May third, twenty twenty two, a Terror stable coin

was worth one dollar. A few days later, it was worth a fraction of a penny. The Bearre offline theme song by Mattasowski will be dropping this Friday, March first, on all streaming platforms. You can find the Spotify presab link in the episode notes. Terr Luna collapsed in May twenty twenty two with the loss of forty five billion dollars in market capitalization, meaning the total value of all

of the tokens on the blockchain. Three arrows capital's entire five hundred million dollar position in Lunar was now effectively worthless. This collapse also shaved off and estimated one trillion dollar value from the wider crypto market. Three Arrows Capital, the so called hedge fund to quote research firm fs insight, was an old fashioned, made off style Ponzi scheme where founders Suzo and Carl Davis would use client funds to borrow from basically anywhere that would let them in the

entire crypto ecosystem. And because Three Arrows didn't bother collateralizing these loans sufficiently or managing the risk behind them, there was very little money to turn to customers. The failure of Three Arrows Capital left a multi billion dollar hole in Genesis balance sheet that if paypered over with a one point one billion dollar promissory note from its holding company, Digital Currency Group that was due in twenty thirty two.

This sounds like it would be helpful, right. The problem is this maneuver never appeared to involve the conveyance of any actual money. It pretty much existed only to pretend that Genesis had another one point one billion dollars on the books. To be abundantly clear, no money actually ever got sent to anybody. This promissory note only existed to

mislead creditors about the financial health of Genesis. As you can understand, those creditors would probably want to know, well, okay, do you have enough money in case we need our money back? Little bit of a spoiler for you, they didn't. The Terror Lunar and Three Arrows capital fiasco trash the value of cryptocurrencies, with Bitcoin dropping from around thirty thousand in mad twenty twenty two to less than twenty grand

in October. And in November twenty twenty two, ftx collapsed as a result of the coin Desk article, again owned by DCG, that revealed that most of ftx's assets were held in FTT, a token that they owned the majority of and could never sell because doing so would crash the FTT market, making said asset worthless. Indeed, in cryptocurrency,

this is a big problem. If you have a big market and say there's twenty billion dollars of a token out there, but one person owns a billion of it, they actually can't sell it because in doing so, the market would suddenly think, oh, this is worthless because someone wants to dump him. The results of this revelation that FTX was holding most of the world's FTT and thus could never sell it, and indeed that in the process made their company pretty much insolvent. This left both retail

investors and institutional investors out to dry. Now eager ide and eager eared listeners may have probably guessed by this point that Genesis was inexhoribly entangled in this disaster, quickly going from saying that they had no material exposure to FDx on November eight, twenty twenty two, to then saying they had seven million dollars of exposure on November tenth, to saying that they had one hundred and seventy five million dollars in exposure a day later, to saying that

they needed to freeze all customer withdrawals and new loans entirely and that they would likely be going bankrupt, which they said on November eighteenth, twenty twenty two. They entered Chapter eleven bankruptcy. In the early twenty twenty three. The Digital Currency Group, which of course owns Genesis, had also borrowed five hundred and seventy five million dollars from them, which has since led to the hilarious situation of Genesis, suing the company that owns it as part of its

own bankruptcy proceedings. This is the company that the Wingovoss twins and Gemini their cryptocurrency exchange, had allegedly run through their risk management framework and despite allegedly reviewing the collateralization management process that Genesis underwent, which means how they lateralized the loans, what money they took in to make sure that the loans did not just fall apart if something bad happened. Well, Gemini hadn't diversified their investments at all.

They put over a billion dollars of customer funds into Genesis, money which is most likely gone now. In many respects, Gemini was the cryptocurrency equivalent of Green Seal Capital, a company that at one point was the highest profile lender in the supply chain financing space, touting former British Prime Minister David Cameron as one of its advisors. Like Gemini, green Seal Capital pretended to be a diversified business, when in reality it borrowed money from large institutional investors to

lend to a handful of companies. The circumstances behind its collapse are slightly more complicated than those of Genesis, but not by much. Green Sill's implosion in twenty twenty one rippled throughout the industry, contributing to the demise of the already troubled credit sueese which were acquired really they were rescued by UBS in early twenty twenty three for the bargain price of just three point twenty five million dollars.

Since November twenty twenty two, when Gemini froze, withdrawals from Gemini earned the interest bearing account, the Winklevosses and Barry Silbert, CEO of Digital Currency Group, who, as I've mentioned, are technical owners of Genesis, have engaged in an embarrassing back and forth publicly on Twitter, where the Winklevosses have attempted to frame themselves as victims of a scam rather than

bad actors acting badly. If they were remotely competent, they could have yanked their customers' funds the ones loaned to Genesis from the Gemini ern program. When it was revealed that Genesis loaned two point four billion dollars for three hourrows capital in July of twenty twenty two, call it what you want. Prudent's diligence or just risk management, but it would have been the sensible thing to do, unless, of course, they didn't believe they'd be able to get

the money out. On October nineteenth, twenty twenty three, New York Attorney General Letitia James filed a massive fraud suit against Gemini, Genesis Global Capital, and Digital Currency Group, ring a conspiracy to mislead customers and cover up of rebillion

dollars of losses. The Attorney General's office found that the twin brothers named Cameron and Tyler Winklevoss had misled investors about the risks associated with Genesis, and that Genesis not only failed to disclose its losses, but took steps to actively hide them from their clients and the public. The New York Attorney General's suit is damning and shows that Gemini was well aware of the rotten condition of Genesis from the launch of the program in twenty twenty one.

With Gemini and I quote the Attorney General suit here their internal risk analysis showing that Genesis Capital's loan book was undercollateralized, which means that they did not have enough money to give back the money that they owed to their customers and that only a year into the program, Gemini revised its estimate of Genesis Capital's credit rating, which is the way in which you measure whether a creditor or someone who is borrowed or loaning money whether they're

worthy of doing so. They provised its testiment of their credit rating from an investment grade of BBB to a non investment or junk grade of CCC. Don't need to

get too technical here, just know that's pretty bad. Genesis also routinely reported to Gemini from May twenty twenty two through November twenty twenty two that he had failed its own internal loan book risk assessments, to the point that in July twenty twenty two, a Gemini board member compared Genesis Capital to Layman Brothers prior to the financial collapse of two thousand and seven and two thousand and eight. At this point, you're probably thinking, so all the money's

gone and your raim. Gemini and the Winklevosses decided they would terminate the EARN program on September second, twenty twenty two, but only decided to inform Genesis that it would do

so on October thirteenth, twenty twenty two. It continued to send customer funds to Genesis throughout this period until an indeterminate time, with all of this information coming from the Attorney General's suit, and they failed to let customers know that the program was fully terminated until January twenty twenty three, though I should add that they froze with drawals in

November twenty twenty two. All of these dates are very confusing, but the important facts to know is that Gemini knew from twenty twenty one that they were sending customer funds into an unreliable, unstable, undercollateralized lender for years, and indeed, even when they froze their own program when they decided that the party had to stop in September twenty twenty two, they were still taking customer funds and putting it in

Genesis's hands. They didn't freeze the withdrawal process, the way in which customers have withdrawn their funds, until November twenty twenty two, So that's months of throwing customer money into the toilet and aggressively flushing it like you're trying to get rid of a basketball. They knew. Cameron and Tyler Winklevos knew. They knew what they were doing. They knew

they were losing customers money, and they didn't care. Two American billionaires put a billion dollars of customer funds into deeply questionable lenders' hands, then proceeded to obfuscate the risks involved. They claimed that Genesis had appropriate risk ratios and healthy financial condition as recently as November fourteenth, twenty twenty two, a full month after it had formerly terminated their agreement with Genesis, who was the company that they were lending

this too. This wasn't a casual fling with a risky asset class. It was a near billion dollar swindle of and I quote Cameron Winklevoss in his abominable letter to Barry Silbert, a swindle of a single mother who lent her son's education money to them, a father who lent his sons by me for money to Gemini earn, a husband and a wife who lent their life savings. A

school teacher who lent his children's college funds. Cameron and Tyler Winklevoss, as well as Barry Silbert, who runs Digital Currency Group and by proxy, Genesis, have defrauded investors at

a similar scale to Sam Bankman freed. As I mentioned the disgraced and now incarcerated CEO of FTX, They convinced customers that they were putting money into an interest generating account, tricking them into believing that this was a stable, risk managed investment, one that was continually liquid, and they indeed advertised that you could withdraw your assets instantly, as opposed to the reality that Cameron and Tyler Winklevoss knowingly funneled

customer funds into an unstable undercollateralized lender. They intentionally and repeatedly misled customers, claiming to an Earn investor on June twenty seven, twenty twenty two, that they periodically would conduct an analysis of their partner's cash flow, balance sheet, and financial statements to ensure that appropriate risk ratios and healthy financial condition of their partners happened, and that they said their partners were vetted through a risk management process, heavily

implying that said process would protect their customers. And on October twentieth, twenty twenty two, less than a month before, the winklevoss Is frozen withdrawals from Gemini Earn, leaving their customers unable to access their funds or their interest digital

currency groups. CEO Barry Silbert, also the owners of Genesis, met with Cameron Winklevoss and told him that Gemini was Genesis Capital's largest and most important source of capital, and that they couldn't withdraw Gemini earned customers funds without bankrupting

the firm. Cameron and Tyler Winklevoss not only deceived customers, but turned their assets into a load bearing part of Genesis's balance sheet so that they could funnel them into billions of dollars of loans, which would then go into

places like Three Arrows Capital and FDx. And the Winklevosses have spent the best part of a year playing the victim with pathetic open letters that they post on Twitter to Barry Silbert, demanding the returns of funds that they knew were gone, claiming that Silbert hid in his ivory tower and he should take responsibility and do the right thing, as Cameron and his brother continued to mislead the world

about what actually happened. While I'd never refer to the Winklevosses as victims, one cannot ignore how thoroughly fraudulent Barry Silbert's empire had become. On January twenty fourth, twenty twenty two, Genesis Capital loaned one hundred million dollars to DCG, the company that owned it, due on July twenty fourth, twenty twenty two, only for Digital Currency Group to tell them that they and I quote the suit literally did not

have the money. Barry Silbert's solution was to and I quote repaper the loan, delaying its due date by ten months to May twenty twenty three, and you'll be surprised to hear that they never actually paid it back, along with several other loans that were either unpaid or paid back in shares of another part of Digital Currency Group

called Greyscale Bitcoin Trust, another enterprise involved in crypto. According to Sam Bankman Freed's testimony during his own criminal fraud and conspiracy trial, Barry Silbert begged him for help, which he declined to provide, despite Genesis Capital having loaned FDx billions of dollars in the past, which trustees agreed to settle for a puzzling one hundred and seventy five million dollars.

And just to be clear, the bankruptcy trustee just was just like, I'll take one hundred and seventy five million. I don't need the billion back, and one can really

see where they misled Gemini and the Winklevoss brothers. The one point one billion dollar promisory note from Digital Currency Group to Genesis, the one that was completely fake and was literally just words on paper, was marked in genesis balance sheet, which Gemini was occasionally shown as one point one b billion dollars in receivables from related parties, with no designation of what it was or how it was amortized. In plain English, that just means to any financial analysis

that would appear as just money in the bank. We are receiving cash from someone one point one billion dollars actually, and that's good. That would make you a little bit calmer. However, one cannot ignore the fact that Gemini knew that something was up. In a March fifth, twenty twenty one email to an earn investor, Gemini claimed that Genesis was and I quote only lending assets to posited it inter earned to institutional borrowers in an overcollateralized way. Overcollateralization meaning that

they were loaning more money than they were borrowing. How does that work? It doesn't. Gemini never sought to correct a coin Desk article from February twenty twenty one that claimed, and I quote that the Genesis loans are overcollateralized, the loans in question being the ones where Gemini earned funds. The funds that people put into Gemini earned to earn interest were going It's all just a big pile of

dog shit. In May twenty twenty one, Gemini's risk management team determined that Genesis Capital was and I quote highly leveraged, with an over ninety five percent debt to asset ratio, meaning that most of their money was in debt rather than things they actually had, and that Genesis has low liquidity and that the business is just able to cover its short term obligations. Think of it like living paycheck

to paycheck to the tune of billions. By August twenty twenty one, Gemini Earn had placed three billion dollars of customer assets in Genesis's hands, and this whole situation enrages me. This is one of the largest and most gratuitous acts of negligence in the history of finance, a craven and deliberate swindle that flowed through every vein of the organization.

Gemini intentionally and repeatedly misled customers into investing in an undercollateralized and risky lender by dressing their fraud in the trappings of conventional retail banking. Gemini was well aware and continually reminded of how unstable and disorganized Genesis was and how risky its customer's assets were held, and yet it continued to hype the scheme in the hopes that nothing

would ever change. They put billions of dollars into an entity that from the very beginning they knew was rotten. They knew could barely cover their bills. They could have predicted this, and indeed they tried to. They just wanted to keep the party going. Cameron and Tyler Winklevos are villains, and while they didn't outright steal customer funds, they intentionally and willfully misled customers into investing in Genesis Capital, an

unstable and recklessly managed lender. They were fully aware of these dangers, yet they chose to launch a program that their own risk management team believed was riskier than other partners that Gemini had considered loaning that money to, saying in February twenty twenty two, the Genesis Finances were weaker, with a higher leverage ratio and low liquidity ratio, meaning that they were more risky and they had less money

to give back to customers when they need it. And indeed, they worried that a market downturn would mean that a fifty to sixty percent default rate for Genesis was an appropriate assumption, meaning that more than half of their loans would go under, and that a market downturn would mean that a fifty to sixty percent default rate for Genesis loans was an appropriate assumption, meaning that more than half of their loans default in the event that there was

a change in the cryptocurrency market. The risk management team repeated this language several times, and it took until May twenty twenty two for Cameron Winklevoss to personally ask for a one pager on the risk profile of Gemini Earn and Genesis, the company that they had lent at that time of rebillion dollars two and indeed whether Ern adequately compensated Gemini for the risk. In plain English, they were saying, in a war, is it really worth it for us

to risk all of this customer money? And when they said worth it, they mean is it making us enough money for the pain in the ass we're creating. I hope it wasn't. I hope they burned for this one. Having read the entire New York Attorney General suit, I cannot find a single instance of concern for the hundreds of thousands of people the Gemini and Cameron and Tyler Winklevoss failed despite Gemini's pledge to uphold and I quote,

the highest level of fiduciary obligations. The Winklevosses represent their position as the trusted stewards of the digital currency industry, claiming to live by a policy of asking for permission rather than forgiveness, as they brazenly funneled billions of dollars of customer funds into a lender that they clearly didn't trust.

They ignored the science, they ignored the risk management profiles, they ignored the worries, and they continually rambled about being licensed and regulated by the New York Department of Financial Services, which means absolutely nothing. As Gemini earned deposits were being loaned to Genesis for the terms of Gemini Earns agreement, which in turn took them out of the regulation of

the mydfs. The Winklevosses, the so called self regulators of crypto, according to Paul Vinya of The Wall Street Journal, built a reputation as the trustworthy party in a lawless industry, only to use it as a means of making twenty two million dollars in agent fees and ten million dollars in commission from risking billions of dollars of customer funds and in this case Gemini earned customers are likely going to lose forty to fifty percent of their holdings if

they get anything back at all. A good comparison point here is the creditors related to Voyager, which was another cryptoponzi scheme, only got back thirty five percent of their holdings. Now I have to get into some more annoying financial stuff. You'll forgive me. I just want you to know how loathsome these wet river giants are. These boat boys have

really buggered this up. In October twenty twenty three, the Winklevosses filed something called an adversary proceeding in court against Genesis in bankruptcy court to be specific, seeking to recover one point six billion dollars in value for the benefit of earned users in an attempt to paper over their

financial mismanagement. On August fifteenth, twenty twenty two, Gemini accepted over thirty point nine million shares of Greyscale Bitcoin Trust, a STOG tied to the price of bitcoin, with the minimum investment of fifty thousand dollars and the ticker of GBTC.

They accepted this as collateral for customer funds invested in Gemini Earn, valued at the time at around fifteen bucks apiece, somehow taking on what they call an and I quote initial collateral stake over a year after the program started, just to be clear, no collateral when they learned the

money out. It was worth around four hundred and sixty three million dollars at the time, and the Winklevosses for some reason decided to foreclose upon it on November sixteenth, twenty twenty two, selling it when its price was around nine dollars a share. This left them with two hundred and eighty four million dollars a little bit over that, or roughly sixty four point one percent of its original value.

They didn't have to sell it, and indeed, one might argue they legally shouldn't have because it was collateral from alone, in the same way that the bank can't immediately foreclose in your home when you're in it and you've missed a few payments. They probably weren't meant to do so, But I continue now. The Winklevosses are claiming that they should be considered oded. The difference between two hundred and eighty four million dollars and the amount oede to earns creditors.

Genesis argues, I should say, the bankruptcy trustee of Genesis, which has no interest in anything to do what Genesis is doing other than getting money back for the creditors, most of which are institutional customers, come last. That trustee is arguing that it actually didn't give Gemini two hundred

and eighty four million dollars in credit. They gave them thirty million, nine hundred and five thousand, seven hundred and eighty two shares of GPTC, and that the collateral should be valued at the price of GBTC today, which would value the stake that they had given them at eight hundred million. This is confusing, but what you need to realize is Gemini earned customers have lost somewhere between eight

hundred million and a billion dollars. Had the Winklevosses not sold their shares, they would have got a lot more back. In essence, the Winklevosses rushed to sell these shares for effectively no reason, potentially flaunting very basic foreclosure rule, and Genesis argument is that they shouldn't have to make up

the difference for their massive fuck up. Interestingly, Gemini was also meant to receive another thirty one million shares of GPTC on November tenth, twenty twenty two, and Genesis just didn't send it. And guess what the bankruptcy court isn't going to help with that. Let's be clear, both of these parties are scum, and in a just society, they'd rotten the depths of the worst jails under the terms

of genesis reorganization plan. Under bankruptcy, Gemini earn customers those people, regular people, the people's college funds, the bar mits for funds, the single mothers who had lost their money. They'd be considered Class four unsecured creditors getting paid out behind Genesis institutional creditors, secured creditors and priority claims, which is why Genesis had to pay one hundred and seventy five million dollars to fdx's bankruptcy. A single mothers waited to retrieve

their son's college funds. Yet there may be hope that Gemini Earned customers will be made whole. Mere hours after the original broadcast of this podcast, the New York State Department of Financial Services announced that Gemini had committed to return at least one point one billion dollars to EARNS customers, though only after the resolution of Genesis Global Capital's bankruptcy.

Assuming that the bankruptcy courts approved the settlement, Gemini Earned customers can, according to Gemini, expect to receive approximately ninety seven percent of their assets in kind within two months of February twenty eight, twenty twenty four, and the rest about ten months after that. Unlike the proposed FTX settlement,

customers will also receive the actual crypto they committed. In the case of FTX, they're getting the dollar equivalent on the day that FTX went bankrupt, which means they're getting much less than they'd make if they were selling their crypto today. This means that these customers might actually make money because on the day that Gemini Earned shut down, bitcoin was somewhere between eleven and fifteen thousand dollars. This means that they're actually going to make a profit somehow,

which is pretty good. It's rare to find good news here, and don't get too excited yet, though all of this is dependent on the tedious pace of bankruptcy courts that in this case especially, we've kind of considered Gemini Earns customers second class citizens. This landmark settlement is being spun by the Winkelvoss brothers as and I quote a successful resolution of Gemini Earn that was reached and I quote again with Genesis and other creditors, one in which these

identical River twins are considered. And I can't believe they're willing to say this responsible stewards of the crypto ecosystem. This couldn't be further from the truth. Superintendent Adrian Harris of New York State's Department of Financial Services said in a statement that Gemini had failed to conduct due diligence on an unregulated third party later accused of massive fraud, harming EARNED customers who were suddenly unable to access their assets.

The nydfs IS investigation revealed and I quote that Gemini engaged in unsafe and unsound practices that ultimately threatened the financial health of the company, and they collected hundreds of millions of dollars in fees from Gemini customers that could have gone to Gemini, substantially weakening Gemini's financial condition. The Winklevosses are not responsible stuarts. They're towering con artists that got core and they were forced to pay up only because they ran a foul of one of the few

responsible regulators left in America. While I'm hopeful to earn customer as a main whole, I also fear that the bankruptcy courts may drag their feet, and even if they don't, kind of just want more here. The Winklevosses aren't even the ones paying the fines. Their company is. Gemini will pay the thirty seven million dollar fine from the NYDFS, and I think they're going to pay the one point

one billion dollars in cryptocurrency too. What's weird is I can find no evidence about where that money is coming from. I'm also worried that Genesis, as they have multiple times, will kind of stone wall this deal. They want to get out of this. They recently settled with the SEC for twenty one million dollars, so they have a reason to do well with the US government. But I fear for this. All of this is condentent on bankruptcy. Courts

don't really care regardless of this landmark settlement. It is great, it's great that the regulator has got the customer's money back, but my blood is still boiling. Cameron and Tyler Winklevoss will continue to run Gemini, which is a multi billion dollar financial services company, despite the fact that it's very clear that they really didn't do any due diligence, and that due diligence which they did they completely ignored. They

knew that this was a bad deal. They sent tens hundreds over a billion dollars to a company that they knew as early as twenty twenty one was bordering on insolvent. Yet they're still allowed to walk around as free men and stewards of the financial industry. It's kind of taken the piss and even though the New York Attorney General's sue is still out there, it's not over yet, and

they're still seeking three billion dollars in restitution. They're doing so from Gemini and digital currency group, the Winklevosses are still left unscathed. These are craven fraudsters that continued again and again to operate without oversight or restrain, and now they're going to profit handsomely off of an industry built on the back of manipulating and conning people. And despite how good this settlement is, these guys are still billionaire

boat boys. They're unscathed. They robbed their own company, they robbed their customers, They laughed in our faces. And at this time in society, when tens of thousands of people are being laid off, when people can't get houses, when the regular person that cannot seek wealth, people that go out and fuck over customers again and again and again in broad daylight, lying to us, lying to you and me in a way that is so craven, nothing happens

to them. Oh god, they got slightly embarrassed. They can't be kicked out of Gemini. They own the bloody thing. The crypto industry isn't attacking them, despite the fact that two of your so called stewards are fucking con artists. Anyone who's listening to this, who's a big fan of crypto, who believes that these guys are good people, or indeed that really there are any good people in this industry. Should read the New York Attorney General suit. They should

read everything that the Winklevosses did. They should listen to this podcast again, perhaps, and recount the many ways, the manifold ways in which these two giant freaks shat all over their customers, lied to them, lied to regulators, lied to their own company, and sat there with their thumbs up, their asses not digging into their own personal piggybanks, making the dumbest calls again and again, and nothing has happened

to them. I pray Letitia James and then New York Attorney General's Office finds a way to exile these two bastards from this goddamn financial services industry. But I'm gonna be honest, I'm not holding my breath. Thank you for listening to Better Offline. It's a weekly tech podcast. You can find it on iheartradios, app or anywhere else you find podcasts. The editor and composer of the Better Offline theme song is Matasowski. You can check out more of

his music and audio projects at matasowski dot com. M A T T O s o w Ski dot com. If you want to get in touch with me, email me at easy at better offline dot com, or visit me at edzitron on Twitter or zitron dot Besky dot Social on Blue Sky. Check out my newsletter and more of my work on better offline dot com. Thank you for listening.