From ‘Bitcoin Billionaires’ to SEC Charges: A Brief Crypto History of the Winklevoss TwinsJanuary 14, 2023 0
Cameron and Tyler Winklevoss went from Facebook co-founders duped by Mark Zuckerberg (as dramatized in the movie “The Social Network”) to early crypto adopters who became “Bitcoin billionaires.” Now their firm has been charged by the United States Securities and Exchange Commission (SEC).
The SEC hit cryptocurrency exchange Gemini with securities violations on Thursday over its Gemini Earn program, which promised a return to customers who deposited their crypto holdings. Genesis, its lending partner in the program and a subsidiary of Digital Currency Group (DCG), was also commissioned alongside Gemini.
The allegations come after weeks of increasingly public disagreements between Gemini and DCG leadership following the November collapse of crypto exchange FTX, which sparked a new wave of industry widening as funds stored on FTX were either closed or missing. Genesis is reportedly poised for more than $900 million in Gemini customer funding.
How did it come to this? Here’s a look at the Winklevoss twins’ rapid rise in the crypto industry and the recent moves that led to a public spat between Gemini and DCG, SEC charges and a seemingly huge hole in Gemini’s finances.
Founder of Gemini
The Winklevoss twins received about $65 million in cash and Facebook stock in the 2008 deal to create the social media giant. After establishing the family office Winklevoss Capital in 2012, the brothers began to accumulate large amounts of Bitcoin. The twins owned up to 1% of the major cryptocurrency’s circulating supply as of November 2013, according to the Washington Post.
They went from buying some Bitcoin to leading an investment round in BitInstant, an early Bitcoin exchange whose founder Charlie Shrem was later jailed for money laundering related to the Silk Road market. Also that year, the twins attempted to launch their first Bitcoin ETF (or exchange-traded fund), which was rejected by the SEC.
In 2015, the Winklevoss brothers launched Gemini, a cryptocurrency exchange licensed in their home state of New York. The platform expanded over the years and acquired the Nifty Gateway NFT market in 2019, ahead of the eventual NFT market boom in 2021. Gemini Space Station’s parent company was valued at $7.1 billion as of November 2021.
Cameron and Tyler were first considered “Bitcoin billionaires” in 2017 (as described in Ben Mezrich’s book of the same name) after the price of Bitcoin rose to nearly $20,000 and Forbes currently estimates that each brother has a net worth of 1.1 billion dollars.
But with the crypto industry in turmoil over the past few months, Gemini and its founders have faced new challenges. In June 2022, the US Commodity Futures Trading Commission accused Gemini of “making materially false or misleading statements” while seeking approval of its Bitcoin futures product, and Gemini laid off 10% of its staff as the crypto market fell
Gemini vs. Genesis
A new wave of crypto industry turmoil fueled Gemini’s recent woes, sparked by the early November collapse of crypto exchange FTX and sister trading firm Alameda Research.
Shortly after, Genesis announced it would suspend customer withdrawals from its lending arm due to the “FTX impact,” citing “unprecedented market turbulence” in the inability to continue business as usual. Genesis was Gemini’s partner for its Earn Interest product, and Gemini said it would have to freeze customer funds as a result.
In December, the Financial Times reported that Genesis had about $900 million in customer funds from the Gemini Earn program. Digital Currency Group – which owns Genesis, Grayscale Investments and other crypto firms – is said to be dealing with liquidity problems, according to Cameron Winklevoss, although founder and CEO Barry Silbert has assured investors otherwise.
In early 2023, private negotiations between Gemini and Genesis became public when Winklevoss wrote an open letter to Silbert. In the letter, he accused Silbert of “bad faith stall tactics” toward finding a solution to the funding dispute, suggesting evasive tactics on the part of the DCG chief. Silbert denied the allegations.
The allegations intensified on January 10 after Cameron Winklevoss called for Silbert’s resignation, suggesting misrepresentation and accounting fraud at DCG. The company responded by calling Winklevoss’ claims “another desperate and unconstructive publicity stunt” by Gemini’s founders, who it said were “solely responsible for operating Gemini Earn and marketing the program to its customers.”
Gemini then announced that it had officially ended its Earn program, which it said would force Genesis to return what it said was more than $900 million worth of customer funds. The program had been running for nearly two years in partnership between Gemini and Genesis.
That situation remains unresolved as of this writing, but now both Gemini and Genesis face a new hurdle in the form of SEC charges related to Gemini Earn. The agency alleges the firms sold unregistered securities to customers, collecting billions of dollars worth of crypto in the process from hundreds of thousands of users.
“We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said. “Today’s charges build on previous actions to make clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws.”
In a response on Twitter, Tyler Winklevoss questioned the timing of the allegations, saying that Gemini had been in discussions with the SEC for 17 months and that the program was regulated by the New York Department of Financial Services.
1/ Disappointing that @SECGov chose to file action today as @Gemini and other creditors are working hard together to recover funds. This action does nothing to further our efforts and help Earn users get their assets back. Their behavior is completely counterproductive.
— Tyler Winklevoss (@tyler) January 12, 2023
“Despite these ongoing conversations, the SEC chose to announce their lawsuit in the press before notifying us. Super lame,” he tweeted. “It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of Earn’s 340,000 users and other creditors.”
He added that “Gemini has always worked hard to comply with all relevant laws and regulations.” Genesis and DCG have yet to comment on the SEC’s allegations.
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