Winklevoss Twins' $282M Withdrawal from Gemini Sparks Transparency Concerns
By Noah Washington November 1, 2023
- The Winklevoss twins withdrew $282 million secretly from their own company Gemini, sparking backlash when assets were later frozen.
- The withdrawal raised ethical concerns about transparency as customers were still depositing into Gemini's Earn program
- Legal battles continue around the withdrawal and asset freeze, including an SEC lawsuit alleging Gemini offered unregistered securities
In the midst of a digital gold rush, two prominent figures, Cameron and Tyler Winklevoss, have stood out as both pioneers and polarizing figures. They are best known for their legal feud with Mark Zuckerberg over the founding of Facebook and their subsequent venture into the world of cryptocurrency through their company, Gemini.
However, it's not their high-profile past that's making headlines now; it's their secretive withdrawal of a staggering $282 million from their own company that has sparked outrage and legal battles.
Winklevoss Twins' Hidden Withdrawal
The Winklevoss twins have positioned themselves as trustworthy operators through their cryptocurrency exchange, Gemini. However, their carefully cultivated image is now under scrutiny as the magnitude of their $282 million secret withdrawal comes to light.
To understand the controversy, it's important to delve into the background of Cameron and Tyler Winklevoss and their journey into the cryptocurrency space. The twins, known for their involvement in the early days of Facebook, shifted their focus to the emerging world of digital currency. They founded Gemini, a New York-based crypto exchange, to provide a safe and regulated platform for cryptocurrency trading.
An old Gemini Earn promotion. Source: CoinCodeCap
One of the cornerstones of Gemini's offerings was the Gemini Earn program, an interest-bearing account product that enticed investors with the promise of up to 8% interest on cryptocurrency deposits. This program played a crucial role in their journey and eventually became a focal point of controversy.
The Secret Withdrawal
The bombshell dropped in August 2022 when it was revealed that Cameron and Tyler Winklevoss had orchestrated a secretive withdrawal of $282 million from their own company's bank, Genesis. The withdrawal was executed with remarkable discretion, catching both customers and the crypto community by surprise.
This covert action raised eyebrows even further when, a few months later, Genesis suspended withdrawals on approximately $900 million in customer assets linked to the Gemini Earn program. This freeze left many customers, including Eric Asquith, in financial limbo. Asquith, a Massachusetts resident, lost access to more than $1 million tied to the Earn program, including a $150,000 deposit in October 2022 and a $350,000 deposit made just days before the withdrawal freeze.
Gemini's Reputation at Stake
Gemini, which had long promoted itself as "the most trusted crypto-native finance platform," has found its reputation hanging in the balance. The company's assertion that "trust is our product" seemed to clash with the secrecy surrounding the massive withdrawal and the subsequent freezing of customer assets.
The twins' combative dealings with regulators and their failure to protect Earn customers only added to the growing doubts about their trustworthiness in the crypto industry.
The troubles at Genesis, where Gemini held a significant amount of its funds, began much earlier. Genesis incurred massive losses, to the tune of $1.1 billion, on a loan to the now-defunct crypto hedge fund Three Arrows Capital. These losses shook the foundation of the bank, and it was further destabilized by its involvement in the collapse of Sam Bankman-Fried's FTX empire.
Despite these red flags, Gemini continued to assure its customers that their investments were secure, even as the situation at Genesis deteriorated.
As if the withdrawal and asset freeze were not enough, Gemini faced legal trouble on another front. The Securities and Exchange Commission (SEC) filed a lawsuit against Gemini and Genesis, alleging that they had "offered unregistered securities to the public" and failed to provide adequate information to investors regarding the Gemini Earn program.
Tyler Winklevoss dismissed the SEC's lawsuit as "super lame" and described it as a "manufactured parking ticket." Gemini, in response, sought to have the case dismissed. However, the lawsuit looms as a significant risk to Gemini.
Ethical concerns were further exacerbated by Gemini's lack of transparency with customers. The contradiction between encouraging deposits into the Earn program while executing a massive withdrawal behind the scenes raised troubling questions about the company's intentions and motivations.
The Remaining Funds
While Gemini stated that over $245 million had already been used to fulfill Earn users' redemption requests, another $36.4 million was purportedly set to be "distributed equitably to Earn users" once Genesis bankruptcy proceedings were resolved. However, Gemini remained vague about when these redemptions occurred and why the full withdrawal amount had not already been dispersed.
Legal experts speculated that the company might be holding onto the remaining $36.4 million due to potential clawbacks or disputes during the bankruptcy proceedings.
The SEC's lawsuit against Gemini had significant legal implications. Experts in securities law suggested that the Gemini Earn program clearly qualified as an unregistered security. From a risk management perspective, Gemini's most prudent course of action would have been to register with the SEC and provide full disclosure to investors.
The lawsuit signaled that Gemini had run afoul of federal regulators before, with the Commodity Futures Trading Commission filing a civil lawsuit against the company in the previous year for allegedly making "false and misleading statements."
The controversy surrounding the Gemini Earn program and the $282 million withdrawal did not end there. It became the epicenter of a public feud and legal battle between the Winklevoss twins and another prominent crypto figure, Barry Silbert, who owns Digital Currency Group (DCG), the parent company of Genesis.
Genesis and related parties found themselves embroiled in court-mediated negotiations to resolve customer claims tied to the Gemini Earn program. These negotiations remained unresolved, leaving the fate of Earn customers uncertain.
The Winklevoss twins took legal action against Barry Silbert and DCG, alleging that they were given a "false, misleading, and incomplete representation" of Genesis's financial health. DCG responded by filing a motion to dismiss the suit.
Gemini Controversy Shakes Crypto
The controversy surrounding the Winklevoss twins and Gemini has sent shockwaves through the crypto industry. It has raised critical questions about transparency, ethical practices and regulatory compliance within the cryptocurrency space.
As the legal battles and investigations continue, the future of the Gemini Earn program remains uncertain, leaving investors and crypto enthusiasts watching with bated breath to see how this high-stakes drama unfolds.