This morning, the New York Attorney General's office filed a lawsuit against Genesis Global Capital, Gemini Trust, and Digital Currency Group (DCG). The case focuses on the Gemini Earn program.
The NYAG alleges Gemini lent funds to Genesis, which is owned by DCG, as part of its Earn program. The funds were later lent to counterparties such as trading firms Three Arrows Capital and Alameda Research, which ultimately went bankrupt, and thus, left Genesis with a $1B+ deficit. The NYAG further alleges that Gemini’s internal risk analyses of Genesis showed that loans to the company were risky.
As a reminder, Eaglebrook does not allow clients to borrow or lend, nor did we allow customers to participate in the Earn program on the Eaglebrook Platform. Eaglebrook’s client accounts are custodied in client’s name with Gemini Trust Company and benefit from their institutional storage and security infrastructure, and are separate from the Gemini Earn program. Eaglebrook has reached out to Gemini and will continue to monitor the lawsuit as it develops.
Given the current banking situation, we wanted to confirm to Clients that Eaglebrook Advisors as a corporate entity does not have exposure to the regional banking space.
Client custodian Gemini Trust Company has also confirmed it did not have active exposure to any of the banks that were recently closed. This morning Gemini publicly noted the following – “all Gemini customer U.S. dollars are held at JPMorgan, Goldman Sachs and State Street Bank.”
We are sensitive to the current market environment and should you want to discuss, please do not hesitate to reach out.
On February 6th, Genesis Global Capital and its parent Digital Currency Group agreed to a restructuring deal and recovery plan for creditors of Genesis Global Capital. Gemini was part of the creditors committee that agreed to the plan which is still subject to judicial review and finalization. As part of the agreement Gemini will contribute up to $100mm in cash for Earn customers. Cameron Winklevoss (CO-CEO of Gemini) noted – “This plan is a critical step forward towards a substantial recovery of all assets for Genesis creditors. We have been working around the clock since November 16, 2022 to reach this milestone.” As expected, Gemini custody and exchange continue to operate business as usual. Please also continue to refer to the Gemini Trust Center - here.
Please find a formal statement Gemini provided to us on the recent SEC filings:
On January 12, 2023, the U.S. Securities and Exchange Commission ("SEC") filed a civil enforcement action against Gemini Trust Company, LLC ("Gemini"), as well as against Genesis Global Capital, LLC ("Genesis"), alleging that the Gemini Earn program constituted an unregistered securities offering. The SEC's press release, linking the complaint, is here. Given that Gemini Earn was offered under the supervision of the New York Department of Financial Services ("NYDFS") and that Gemini was in close communication and transparent with the SEC about Gemini Earn for well over a year prior to the filing of the SEC's complaint, we disagree with and intend to defend against the characterization of Gemini Earn as a security that was required to be registered. As the Gemini Earn product had already been permanently retired at the time of the SEC's complaint, we do not believe that the matter will materially impact Gemini's exchange and custody operations.
As an update on the Genesis Global Capital and Gemini Earn matters, on January 19, 2023 Genesis Global Holdco LLC, the parent company of Genesis Global Capital, filed for Chapter 11 bankruptcy protection. As reported, Gemini was the largest creditor at $766mm with the top 50 creditors being owed more than $3.5bn from Genesis Global Capital. As a reminder, Eaglebrook customers are not directly impacted by this proceeding as the Earn product was never permitted through the Eaglebrook platform. Nevertheless, we feel that it is important that we keep you current and share our understanding of Gemini’s actual role given Gemini remains in the headlines due to its now terminated partnership with Genesis Global Capital. Cameron Winklevoss (co-CEO of Gemini) noted “this marks an important milestone in our efforts to help Earn users get their assets back. Doing so remains our highest priority.” Per Gemini, they served as agent for the program, and they are leading the recovery efforts on the Creditor Committee. We have been in close contact with Gemini and will continue to provide meaningful updates on legal and regulatory activity. As expected, Gemini custody and exchange continue to operate business as usual. Please also continue to refer to the Gemini Trust Center - here.
The U.S. Securities and Exchange Commission (SEC) alleged crypto exchange Gemini and crypto lender Genesis Global Capital sold unregistered securities in relation the Gemini Earn product in a lawsuit filed late Thursday. Gemini co-founder, Tyler Winklevoss, responded to the lawsuit stating “the Earn program was regulated by the NYDFS and we’ve been in discussions with the SEC about the Earn program for more than 17 months. They never raised the prospect of any enforcement action until AFTER Genesis paused withdrawals on November 16th.”
Eaglebrook has reached out to Gemini specifically on the lawsuit and will provide meaningful updates as we receive them. As a reminder, Eaglebrook clients have no exposure to Gemini Earn through the Eaglebrook platform. We encourage you to visit the Gemini Trust Center as a resource for helpful information on the Gemini platform.
We welcome the opportunity to answer any questions you may have.
We maintain an ongoing dialogue with all key service providers including, Gemini Trust Company (“Gemini”). There has been some recent press re: Gemini as relates to its Earn program and we wanted to provide some brief remarks and remind you of the resources that Gemini has available to keep its clients updated. As a reminder, Eaglebrook clients have no exposure to Gemini Earn through the Eaglebrook platform. Over the last week, Gemini has openly asked Digital Currency Group (parent company of Genesis) to provide a solution for Earn users. Additionally, on January 5th, there was a news headline speculating that certain Genesis affiliates could be considering bankruptcy stemming from losses related to the collapse of Alameda Research and Three Arrows Capital. No bankruptcy filing has taken place to date.
We encourage you to visit the Gemini Trust Center as a resource for helpful information on the Gemini platform.
We welcome the opportunity to answer any questions you may have.
We learned today of a reported phishing attack at one of Gemini’s third-party vendors that exposed some Gemini client emails and partial phone numbers. Please note there has been no data breach of Eaglebrook systems. While we continue to work with Gemini to understand if any of Eaglebrook client’s email or phone information has been exposed, we wanted to go ahead and flag this to you.
Here is the most relevant statement from the Gemini blog post on this event (full post found here):
“Some Gemini customers have recently been the target of phishing campaigns that we believe are the result of an incident at a third-party vendor. This incident led to the collection of Gemini customer email addresses and partial phone numbers. No Gemini account information or systems were impacted as a result of this third-party incident, and all funds and customer accounts remain secure.”
Gemini recently announced the Gemini Trust Center which can be found here. The Trust Center includes a lot of helpful information including total crypto on the Gemini platform, security control audits completed, regulatory registrations in place and the governance structure operating at the company. The Trust Center reiterates that Gemini is a full reserve exchange and custodian, is a fiduciary and qualified as a custodian under the NY Banking Law and licensed by the New York State Department of Financial Services (NYDFS) and maintains capital requirements in excess of customer deposits with this metric monitored by the NYDFS
Clients of Eaglebrook currently utilize Gemini Trust Company to custody their digital assets. Gemini Trust Company is a custodian qualified under New York Banking Law and is licensed by the New York State Department of Financial Services (NYDFS) to custody digital assets. We have been in communication with Gemini Trust Company specifically regarding the types of failures reported with FTX, and the nature of those discussions is best reflected on Gemini’s Blog found here. Note that Gemini Trust Company is an onshore New York regulated trust company which contrasts with the jurisdiction, entity structure, and regulatory requirements of the FTX parent company. Note that Gemini has continued to reiterate that all customer funds are held 1:1 and available for withdrawal at any time. And that Gemini, pursuant to NYDFS requirements, is required to hold capital in excess of customer deposits. Over the recent period, and as noted in certain articles, Gemini has experienced net withdrawal requests (along with other exchanges) and continues to fulfil them as expected.
Withdrawal requests over the recent period appear to be exacerbated by an announcement regarding the Gemini Earn program, and in particular, actions taken by the lending partner to the Gemini Earn program, Genesis Global Capital, LLC (Genesis). Eaglebrook has been in communication with Gemini on this matter and the best information on this can be found here. We have been told that Genesis paused withdrawals which then required Gemini Earn to pause withdrawals. To our knowledge, Gemini did not initiate the pause. The Eaglebrook investment platform does not allow clients to borrow or lend, nor do we allow customers to participate in the Earn program with respect to assets traded on the Eaglebrook Platform. As such, we are confident that there has been no direct impact of the Earn program to Eaglebrook’s clients.
Eaglebrook’s client accounts are custodied in client’s name with Gemini Trust Company and benefit from their institutional cold storage, hot wallet and security infrastructure. Gemini maintains both a SOC 1 and SOC 2 from a recognized accounting firm, undergoes internal audits and is subject to regulatory oversight requirements (including capital requirements) from the NYDFS.
We understand the markets and headlines are jarring right now and appreciate you taking the time to understand what is (or isn’t) taking place and if you have any further questions or concerns, we would welcome the opportunity to discuss with you.