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All Zone Media.

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Hello and welcome to Better Offline.

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I'm your host ed Zetron. This

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is a weekly tech show where I walk you through the

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good, the bad, and the stupid of a

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multi trillion dollar industry that's

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changed and monetized almost every

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part of our lives.

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So you're likely aware of the tale of Sam Bankman

0:33

Free, the curly haired fraudster who conned

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millions of people out of billions of dollars,

0:38

crushing the cryptocurrency markets in the process.

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He did so by creating a cryptocurrency exchange

0:43

called ftx, where people could buy things

0:45

like bitcoin and ethereum, except

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it had one little catch. He

0:49

was stealing the customer funds, keeping

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only a little around at any given time for

0:54

people to withdraw. This meant that when hundreds

0:56

of thousands of people went to withdraw

0:58

their funds at once, the entire scheme

1:01

fell apart and FTX collapsed. Bankman

1:03

Fried currently sits in prison awaiting sentencing

1:06

after being convicted and several counts of fraud,

1:08

including wirefraud and wirefraud conspiracy,

1:11

which is appropriate as him and his co conspirators

1:13

at one point genuinely used their group

1:16

called wirefraud Chat and

1:18

I am not kidding yet.

1:20

This isn't about SBF. There

1:22

are actually two other villains in this

1:25

story, two villains of

1:27

the recent crypto crash that you might have missed,

1:29

despite the fact that they're both six foot five

1:32

and lost their customers over a billion dollars.

1:36

I'm talking about Cameron and Tyler

1:38

Winklevoss, two brothers, both

1:40

alike in dignity and appearance, the

1:42

gay notoriety by suing Mark Zuckerberg

1:45

of Facebook now known as Metta in

1:47

the early days of the social network back in

1:49

two thousand and four. In

1:51

the Winklevi's defense, Zuckerberg

1:53

dig screw them as a student at Harvard,

1:56

where he pretended to work on the Winklevoss's social

1:58

network, Harvard Connect while actually

2:00

working on the earliest version of Facebook, effectively

2:03

sabotaging the competition from within. When

2:06

Facebook finally launched the identical Moist,

2:08

Riverboat Giants alleged that Zuckerberg

2:10

had stolen their idea for a social network

2:13

and used their code, resulting in a year's

2:15

long back and forth and a sixty

2:17

five million dollar settlement that the Winklevosses

2:19

were forced by a court to accept. In twenty

2:21

eleven, I think the had

2:23

Zuckerberg kept his filthy little hands to himself,

2:26

we'd likely never have heard of Tyler and

2:28

Cameron Winkelvoss, and

2:30

I believe the world would have been a better place if

2:34

they weren't already. The Winklevoss twins were

2:36

now millionaires. In twenty ten, Aaron

2:38

Sorkin's Oscar nominated retelling

2:40

of the Facebook origin story the social network

2:43

would raise their profiles even further, portraying

2:45

them as victims of a calculated, misanthropic

2:48

opportunist, Mark Zuckerberg. Of

2:50

course, you could almost feel sorry for

2:52

them, even if they were portrayed by Armie Hammer,

2:55

the famous cannibalism fan and

2:58

potentially perverted in enjoyer

3:01

of other things too. But

3:03

you really shouldn't feel sorry for Army

3:05

Hammer. But you definitely shouldn't for the Winklevosses

3:08

either. In the years following

3:10

their legal dust up with Mark Zuckerberg, the Winklevoss

3:12

twins remained active in the tech scene, launching

3:15

an investment fund in twenty twelve that focused on

3:17

early stage, consumer centric startups.

3:20

A year later, they acquired eleven million dollars

3:22

of bitcoin, and while it's unclear exactly

3:24

how much they bought. A New York Times article

3:26

about their acquisition, which of course featured

3:29

no verification of that actual purchase,

3:31

ran on April eleventh, twenty thirteen,

3:33

when bitcoin was around one hundred and fourteen dollars

3:36

apiece, meaning that the Winklevoss brothers

3:38

likely bought somewhere in the region of ninety

3:41

thousand bitcoin. Based on today's

3:43

valuation, those holdings would be worth

3:45

an excess of three point eight billion dollars.

3:48

It was a big, stupid bet,

3:50

and it absolutely paid off. In

3:53

the same year, they'd pursue creating a bitcoin

3:55

exchange traded fund also known as

3:57

an ETF, a thing that allows

4:00

you to invest in something, in this case bitcoin,

4:02

much like you would trading a stock, without

4:04

all of the complexity and risk associated

4:07

with actually owning the thing in question, in this

4:09

case bitcoin. While

4:11

this never materialized, the winklevoss

4:13

Is cozied up with New York's Department of Financial

4:15

Services and realized they could found their

4:17

own cryptocurrency exchange to

4:20

rival the other American rival, Coinbased,

4:22

which had launched two years earlier. A

4:24

cryptocurrency exchange, as I've discussed,

4:26

is a place where you can buy and sell your crypto

4:29

using generally a credit card or

4:31

a debit card. At the time very focused

4:33

on debit cards, though in twenty

4:35

fifteen they launched Gemini, what

4:38

would eventually become a major and highly

4:40

respected cryptocurrency exchange that from

4:42

the very beginning tried to swaddle its

4:44

ugly and often fraudulent industry in

4:46

a blanket of legitimacy, winning approval

4:48

from New York state regulators to provide

4:50

certain financial services. Gemini

4:53

now sits as one of the top ten

4:55

largest cryptocurrency exchanges in the world

4:57

and one of the few remaining American exchange.

5:00

One might be forgiven for thinking they were trustworthy,

5:04

and they'd be wrong. Toward

5:06

the end of twenty twenty, the price of cryptocurrencies

5:09

began to climb rapidly, with bitcoin climbing

5:11

from nineteen thousand dollars in December to over

5:13

forty thousand dollars in January, cresting

5:15

over fifty thousand dollars a bitcoin by March

5:18

twenty twenty one. The cryptocurrency

5:20

industry would see more venture

5:22

investment in the first quarter of twenty twenty one

5:24

than it had in the entirety of

5:27

twenty twenty, with one hundred and twenty nine

5:29

crypto and blockchain startups receiving two

5:31

point six billion dollars in the

5:33

space of three months, compared to three hundred

5:35

and forty one cryptocurrencies receiving two point

5:37

three billion in the entirety of twenty

5:39

twenty. As an

5:42

explanation for those listeners

5:44

that don't know, venture capital investments

5:46

are generally investing inequacy

5:48

in the companies. They buy a piece of the company

5:50

for a certain amount of money, venture capitalists,

5:53

of course, taking the risk that the company will fall apart.

5:56

What differs with a lot of these companies is

5:58

that they will sometimes sell you a token. This

6:01

isn't necessarily relevant for this story. I

6:03

just want you to know the fact that this industry at

6:05

its core is based on the idea

6:08

of basically selling securities,

6:10

you know, like stocks,

6:12

but hiding from the law and

6:14

conning people. That's not how

6:16

the Winklevosses fucked people over, though, no.

6:21

So another thing to realize about these crypto

6:23

companies is that they didn't really do anything.

6:26

They'd sell tokens. They would claim that they would

6:28

build something in the future on something called a roadmap.

6:31

They would sometimes have a white paper which would describe

6:33

some underlying technological stuff. But there

6:36

are really none of them that had a feature

6:39

or a function. They were mostly

6:41

just nonentities that promise

6:43

things. But because you could trade

6:46

their tokens, which much like a

6:48

stock, should have been regulated

6:51

by the government, but were not because they were such

6:53

new financial devices and objects.

6:56

Well, this whole market was

6:58

growing and growing and growing, and

7:01

along with it, the Winklevosses were getting even

7:03

richer. Then they got

7:05

greedy. To understand

7:08

how the Winklevosses bungled a billion dollars,

7:10

I have to give you a little bit of background on the last

7:12

few years of hell in the cryptocurrency industry.

7:16

In February twenty twenty one, Gemini, that's

7:18

their cryptocurrency exchange where you could buy

7:20

and sell different cryptocurrency began

7:23

something called Earn, their Earn program.

7:26

It was an interest earning program where

7:28

users could feed their cryptocurrency like Bitcoin,

7:31

for example, into Gemini through

7:33

a few clicks and earn interest.

7:36

And you should put quotation marks around those

7:38

so you would get a percentage return on

7:40

the crypto that you put into

7:42

Gemini Earn. One might be

7:44

forgiven for believing that as a result,

7:47

they were putting money into some sort of secure protected

7:49

account like a certificate of deposit. They

7:51

really were not, I must be clear,

7:54

how not like a bank. This was Gemini,

7:57

a New York based trust company that promised

7:59

to security protocols on par with those

8:02

offered by top financial institutions.

8:04

Claimed to generate this interest by working

8:06

with and I quote institutional

8:08

borrowers who were partners who had

8:10

been vetted through Gemini's and I quote

8:13

again risk management framework. What's

8:15

also important to know is that none

8:17

of what you're about to hear was the security issue.

8:20

It was entirely the result of two

8:22

greedy riverboat giants pissing

8:25

away money because they were greedy little

8:27

pigs. And as a result

8:29

of trusting this company that was a

8:31

trust company, a New York based trust

8:33

company, a regulated one allegedly,

8:36

but not regulated for the thing that I'm about

8:38

to tell you, people trusted

8:40

them, and as a result, customers deposited

8:42

somewhere between seven hundred million and a

8:45

billion dollars of funds into Gemini

8:47

Earn, believing that Gemini was offering

8:49

something akin to an interest generating savings

8:51

account. After all, Gemini

8:54

had institutional partners, and that

8:56

is plural. That's what they said and they

8:58

had vetted said partners through their collateralization

9:01

management process, which means, in

9:03

the case of a loan, you collateralize the loan, you

9:05

give them something. For example, you would collateralize

9:08

the loan for a house by giving them a down payment

9:10

of twenty percent. In the case of a loan,

9:13

you might borrow a certain amount of money, but put

9:15

some money down so they have something in the

9:17

event that you default on the loan. In

9:20

plain English, they were claiming to work

9:22

with institutional investors like banks and

9:24

hedge funds that would pull Gemini

9:27

earn customers, so people giving them their Bitcoin

9:29

ethereum and all that they

9:31

would pull those resources to allow them

9:33

to get involved in big trades with better

9:36

returns than users will be able to get on their own.

9:38

Indeed, classical financial

9:41

markets have larger loans that have preferential

9:43

rates and get involved in deals that the regular

9:45

customer would not be able to. That's

9:47

what people thought they were getting. The

9:50

other suggestion was that Gemini had diversified

9:52

its risk and there's actually an archived

9:55

version of the Gemini earned Patron twenty twenty one that

9:57

said that Gemini worked with multiple accredited

10:00

party borrowers to do so. As

10:02

a result, as a customer, you may believe,

10:05

well, if one fails, that won't be the

10:07

end of the world. Right. It's

10:11

also important explaining that the way that a lot

10:13

of these companies in crypto made their

10:15

money was by loaning it to others in the form

10:17

of margin trading, where investors,

10:20

both retail and institutional, borrowed

10:22

a massive amount of cryptocurrency in returned

10:24

for collateral which was usually less

10:27

than the amount they were borrowing. As I mentioned, kind

10:29

of like putting a damn payment for a house, except

10:32

the asset is a token on a blockchain

10:34

like bitcoin. In

10:36

fact, as you'll find out, most

10:39

of the cryptocurrency industry was held up by

10:41

these loans. Now,

10:45

all of this supposedly legal and

10:47

cool and normal stuff. All

10:49

this sounded very trustworthy. This was,

10:51

of course not the case. Neither

10:53

was it the case that Gemini had diversified

10:56

their investments at all, or

10:58

actually really any risk management

11:01

of any kind. Although Gemini had

11:03

the outward appearance of being a highly diversified,

11:05

sophisticated and well run financial

11:07

services business, it actually wasn't.

11:10

They placed the vast majority of their

11:12

eggs in one single basket,

11:15

and that was a cryptocurrency

11:17

brokerage called Genesis. Genesis

11:21

provided a variety of cryptocurrency

11:23

related services for large institutional

11:26

investors and high net worth individuals.

11:29

Their money was made by offering these institutions

11:31

and individuals loans leveraged by

11:33

their cryptocurrency, which Genesis

11:35

would in turn invest, theoretically profiting

11:38

in the process through their access

11:40

to large deals. As I previously mentioned,

11:43

when I say leverage, I mean the

11:45

very simple thing of I give you some

11:47

money and then you lend me money

11:50

in return, and there is

11:52

usually some sort of interest deal, or there is

11:54

some way where both parties benefit. Sometimes

11:56

it will be that they are borrowing

11:58

an asset like bitcoin. The price can change,

12:01

then the collateral they give maybe an excess

12:03

of the amount they're borrowing in dollars,

12:06

but the price of bitcoin may go down. Thus,

12:08

as a result, if I loaned somebody a billion

12:10

dollars a bitcoin, but the price of bitcoin went down

12:12

and they gave me, I don't know, one point

12:15

something billion in return, They're gambling

12:18

the idea that bitcoin will go up from there, and

12:20

I'm gambling that it will go down, and I would have made money

12:22

on that loan. This is a messy stupid

12:25

assholes industry one built

12:27

on sand and you're about

12:29

to find out how badly it can go. So

12:33

Genesis was also part of a huge

12:35

empire called the Digital Currency Group,

12:37

a holding company for multiple different parts of the

12:39

cryptocurrency ecosystem, including

12:42

cryptocurrency news outlet coin Desk,

12:44

which ironically was a

12:46

large part of the reason that Sam Bankman Freed

12:48

has gone to prison. I

12:51

could do an entire episode on this company,

12:53

but all you really need to know is that they own Genesis,

12:55

and while Genesis was meant to be independent,

12:57

it absolutely was not. And

13:00

what's really important to know is how stupidly

13:02

Genesis was run. They weren't simply

13:05

bad at investing. They were so

13:07

bad at investing that they somehow managed

13:09

to invest in not one, but two

13:11

of the entities that brought down the

13:14

entire cryptocurrency industry in twenty

13:16

twenty two. Their first mistake

13:18

was investing two point four billion

13:21

dollars in Three Arrows Capital,

13:23

a major cryptocurrency hedge fund that

13:25

ended up being a significant scam that also

13:27

led to the collapse of FTX, the other

13:30

entity that Genesis had trusted with its capital,

13:33

and again that's the subject of another

13:35

episode. Three Arrows Capital

13:37

was a Singapore based cryptocurrency

13:39

hedge fund with over a decade worth of

13:41

history. Run by two guys. It

13:44

started life in arbitrage, essentially making

13:46

money on the differences in prices of products in two

13:48

separate locations, with a niche in

13:50

smaller traditional currencies like the ty bart

13:53

and the Indonesian Rupia. This

13:55

business model often relied on a healthy

13:57

relationship with legacy banks. We

13:59

had some success on that front. It's relationship

14:01

soured in twenty seventeen, forcing

14:03

the company to pivot to the wild West of cryptocurrency.

14:07

It started investing its client's money in early

14:09

stage crypto projects, hoping for a big

14:11

return when their values went up. One

14:13

of these projects was terror Lunar, an algorithmic

14:16

stable coin which, in plain English

14:18

is meant to be a cocoon on

14:20

the Ethereum blockchain that is always

14:22

related to the price of a dollar, except

14:26

in this case. You may have heard that word algorithmic.

14:29

You know what The problem with algorithms is they

14:32

need to be perfect in they almost never are.

14:35

But this bit kind

14:37

of requires some explanation, so bear with me.

14:40

Cryptocurrencies like Bitcoin and Ethereum,

14:43

they're wildly volatile, which is bad

14:45

if you want to actually transact with them. If

14:47

a currency could be twenty five percent more

14:49

or less the next day, how do

14:51

you actually know what to charge for something? And

14:54

that's where stable coins come in. These

14:57

are cryptocurrencies that aim to fix their

14:59

value to that of a traditional

15:01

fiat currency like the US dollar

15:03

or the Euro. Most stable coins

15:06

have, or say they have, at least

15:08

a cash reserve equivalent to the amount

15:10

of tokens in circulation. Terror

15:12

Lunar differed using an algorithm

15:15

to maintain price parity rather

15:17

than any reserves. The algorithm

15:19

worked until it suddenly and violently

15:21

did not. On May third, twenty twenty

15:24

two, a Terror stable coin

15:26

was worth one dollar. A few days

15:28

later, it was worth a fraction of a penny.

15:42

The Bearre offline theme song by Mattasowski

15:44

will be dropping this Friday, March first, on

15:47

all streaming platforms. You can find

15:49

the Spotify presab link in the episode

15:51

notes.

16:09

Terr Luna collapsed in May twenty twenty

16:11

two with the loss of forty five billion

16:14

dollars in market capitalization, meaning

16:17

the total value of all of the

16:19

tokens on the blockchain. Three

16:22

arrows capital's entire five

16:24

hundred million dollar position in

16:26

Lunar was now effectively worthless. This

16:29

collapse also shaved off and estimated

16:32

one trillion dollar value from the

16:34

wider crypto market. Three

16:36

Arrows Capital, the so called hedge fund

16:39

to quote research firm fs insight,

16:42

was an old fashioned, made off style Ponzi

16:44

scheme where founders Suzo and

16:46

Carl Davis would use client funds

16:48

to borrow from basically anywhere that would

16:50

let them in the entire crypto ecosystem.

16:53

And because Three Arrows didn't bother collateralizing

16:55

these loans sufficiently or managing the risk

16:58

behind them, there was very little money to turn

17:00

to customers. The

17:02

failure of Three Arrows Capital left

17:05

a multi billion dollar hole in

17:07

Genesis balance sheet that if

17:09

paypered over with a one point one billion

17:11

dollar promissory note from its holding company,

17:13

Digital Currency Group that was due in

17:16

twenty thirty two. This

17:18

sounds like it would be helpful, right. The

17:21

problem is this maneuver never appeared

17:23

to involve the conveyance of any actual

17:25

money. It pretty much existed

17:27

only to pretend that Genesis had another

17:30

one point one billion dollars on the books. To

17:32

be abundantly clear, no money

17:34

actually ever got sent to anybody. This

17:37

promissory note only existed to mislead

17:39

creditors about the financial health of Genesis.

17:42

As you can understand, those creditors would probably

17:44

want to know, well, okay,

17:46

do you have enough money in case we need our

17:49

money back? Little

17:51

bit of a spoiler for you, they didn't. The

17:53

Terror Lunar and Three Arrows capital fiasco

17:56

trash the value of cryptocurrencies, with Bitcoin

17:58

dropping from around thirty thousand in mad

18:00

twenty twenty two to less than twenty grand in

18:02

October. And in November twenty

18:04

twenty two, ftx collapsed as a

18:06

result of the coin Desk article, again owned

18:09

by DCG, that revealed that most

18:11

of ftx's assets were held in FTT,

18:13

a token that they owned the majority of and could

18:15

never sell because doing so would crash the FTT

18:18

market, making said asset worthless.

18:20

Indeed, in cryptocurrency, this is a big

18:22

problem. If you have

18:25

a big market and say there's twenty

18:27

billion dollars of a token out there, but one person

18:29

owns a billion of it, they actually can't sell

18:31

it because in doing so, the

18:34

market would suddenly think, oh, this is worthless because

18:36

someone wants to dump him. The

18:38

results of this revelation that FTX

18:41

was holding most of the world's

18:43

FTT and thus could never sell it, and indeed

18:45

that in the process made their company pretty

18:48

much insolvent. This left

18:50

both retail investors and institutional investors

18:52

out to dry. Now

18:55

eager ide and eager eared listeners

18:57

may have probably guessed by this point that Genesis

18:59

was inexhoribly entangled

19:02

in this disaster, quickly

19:04

going from saying that they had no material exposure

19:06

to FDx on November eight, twenty twenty

19:09

two, to then saying they had seven million

19:11

dollars of exposure on November tenth, to

19:13

saying that they had one hundred and seventy five

19:15

million dollars in exposure a day later, to

19:18

saying that they needed to freeze all customer

19:20

withdrawals and new loans entirely and

19:22

that they would likely be going bankrupt, which

19:24

they said on November eighteenth, twenty twenty

19:26

two. They entered Chapter eleven bankruptcy.

19:29

In the early twenty twenty three.

19:31

The Digital Currency Group, which of course

19:33

owns Genesis, had also borrowed five hundred

19:35

and seventy five million dollars from them, which

19:38

has since led to the hilarious situation of Genesis,

19:40

suing the company that owns it as part of

19:42

its own bankruptcy proceedings. This

19:46

is the company that the Wingovoss twins and Gemini

19:48

their cryptocurrency exchange, had allegedly

19:50

run through their risk management framework

19:53

and despite allegedly reviewing the collateralization

19:56

management process that Genesis underwent, which

19:58

means how they lateralized

20:00

the loans, what money they took in to make sure that

20:02

the loans did not just fall apart if something

20:04

bad happened. Well,

20:07

Gemini hadn't diversified their investments

20:09

at all. They put over a billion

20:11

dollars of customer funds into Genesis, money

20:14

which is most likely gone

20:16

now. In many respects,

20:18

Gemini was the cryptocurrency equivalent of

20:20

Green Seal Capital, a company that

20:22

at one point was the highest profile lender in the

20:24

supply chain financing space, touting

20:27

former British Prime Minister David Cameron

20:29

as one of its advisors. Like Gemini,

20:31

green Seal Capital pretended to be a diversified

20:34

business, when in reality it borrowed money from large

20:36

institutional investors to lend to a handful

20:38

of companies. The circumstances behind

20:40

its collapse are slightly more complicated than those

20:42

of Genesis, but not by much. Green

20:45

Sill's implosion in twenty twenty one rippled

20:47

throughout the industry, contributing to the demise

20:49

of the already troubled credit sueese which

20:51

were acquired really they were rescued

20:53

by UBS in early twenty twenty three for

20:56

the bargain price of just three point twenty five

20:58

million dollars. Since

21:00

November twenty twenty two, when Gemini

21:02

froze, withdrawals from Gemini earned

21:04

the interest bearing account, the Winklevosses

21:07

and Barry Silbert, CEO of Digital Currency

21:09

Group, who, as I've mentioned, are technical owners

21:11

of Genesis, have engaged in

21:13

an embarrassing back and forth publicly

21:16

on Twitter, where the Winklevosses have attempted

21:18

to frame themselves as victims of a scam

21:21

rather than bad actors acting badly.

21:23

If they were remotely competent, they

21:26

could have yanked their customers' funds the

21:28

ones loaned to Genesis from the Gemini

21:30

ern program. When it was revealed that Genesis

21:33

loaned two point four billion dollars for three

21:35

hourrows capital in July of twenty twenty

21:37

two, call it what you want. Prudent's

21:40

diligence or just risk management, but

21:42

it would have been the sensible thing to do, unless,

21:45

of course, they didn't believe they'd be able to get

21:47

the money out. On

21:49

October nineteenth, twenty twenty three,

21:52

New York Attorney General Letitia James

21:54

filed a massive fraud suit against Gemini,

21:56

Genesis Global Capital, and Digital

21:58

Currency Group, ring a conspiracy

22:01

to mislead customers and cover up

22:03

of rebillion dollars of losses. The

22:05

Attorney General's office found that the twin

22:07

brothers named Cameron and Tyler Winklevoss

22:10

had misled investors about the risks

22:12

associated with Genesis, and

22:14

that Genesis not only failed to disclose

22:17

its losses, but took steps to

22:19

actively hide them from their clients

22:21

and the public. The

22:23

New York Attorney General's suit is damning and

22:25

shows that Gemini was well aware of the rotten

22:27

condition of Genesis from the launch

22:30

of the program in twenty twenty

22:32

one. With Gemini and I

22:34

quote the Attorney General suit here

22:37

their internal risk analysis showing

22:39

that Genesis Capital's loan book was undercollateralized,

22:43

which means that they did not have enough money

22:45

to give back the money that they

22:47

owed to their customers and

22:49

that only a year into the program,

22:52

Gemini revised its estimate of Genesis

22:54

Capital's credit rating, which is the

22:56

way in which you measure whether a creditor

22:58

or someone who is borrowed or loaning money

23:01

whether they're worthy of doing so. They

23:03

provised its testiment of their credit rating

23:06

from an investment grade of BBB to

23:08

a non investment or junk grade of CCC.

23:11

Don't need to get too technical here, just know that's

23:13

pretty bad. Genesis also

23:15

routinely reported to Gemini from May twenty

23:18

twenty two through November twenty twenty two

23:20

that he had failed its own internal

23:22

loan book risk assessments, to the point

23:24

that in July twenty twenty two, a Gemini

23:27

board member compared Genesis Capital to

23:29

Layman Brothers prior to the financial collapse

23:31

of two thousand and seven and two thousand and eight. At

23:34

this point, you're probably thinking, so all

23:36

the money's gone and your raim. Gemini

23:40

and the Winklevosses decided they would terminate

23:43

the EARN program on September

23:45

second, twenty twenty two, but only

23:47

decided to inform Genesis that it would do so

23:49

on October thirteenth, twenty twenty two. It

23:52

continued to send customer funds

23:54

to Genesis throughout this period

23:57

until an indeterminate time, with all of

23:59

this information coming from the Attorney

24:01

General's suit, and they failed

24:03

to let customers know that the program was fully terminated

24:06

until January twenty twenty three, though

24:08

I should add that they froze with drawals in November

24:10

twenty twenty two. All

24:13

of these dates are very confusing, but the

24:15

important facts to know is that Gemini

24:17

knew from twenty twenty one that

24:20

they were sending customer funds into

24:22

an unreliable, unstable,

24:24

undercollateralized lender for

24:27

years, and indeed, even

24:29

when they froze their own program when

24:31

they decided that the party had to stop

24:33

in September twenty twenty two, they

24:35

were still taking customer funds and putting

24:38

it in Genesis's hands. They

24:40

didn't freeze the withdrawal

24:42

process, the way in which customers have withdrawn

24:45

their funds, until November twenty twenty two,

24:48

So that's months of throwing

24:51

customer money into the toilet and aggressively

24:53

flushing it like you're trying to get rid

24:55

of a basketball. They

24:59

knew. Cameron

25:01

and Tyler Winklevos knew.

25:04

They knew what they were doing. They

25:06

knew they were losing customers money,

25:09

and they didn't care. Two

25:12

American billionaires put a billion

25:14

dollars of customer funds

25:16

into deeply questionable lenders' hands,

25:19

then proceeded to obfuscate the risks involved.

25:22

They claimed that Genesis had appropriate

25:25

risk ratios and healthy financial

25:27

condition as recently as November

25:29

fourteenth, twenty twenty two, a

25:32

full month after it had formerly

25:34

terminated their agreement with Genesis, who

25:36

was the company that they were lending this too.

25:39

This wasn't a casual fling with a

25:42

risky asset class. It

25:44

was a near billion dollar swindle

25:46

of and I quote Cameron Winklevoss

25:49

in his abominable letter to Barry

25:52

Silbert, a swindle of a single

25:54

mother who lent her son's education money

25:57

to them, a father who lent

25:59

his sons by me for money to Gemini

26:01

earn, a husband and a wife

26:03

who lent their life savings. A

26:05

school teacher who lent his

26:08

children's college funds. Cameron

26:11

and Tyler Winklevoss, as well as

26:13

Barry Silbert, who runs Digital Currency

26:15

Group and by proxy, Genesis,

26:18

have defrauded investors at a similar

26:20

scale to Sam Bankman freed. As

26:22

I mentioned the disgraced and now incarcerated

26:25

CEO of FTX, They

26:27

convinced customers that they were putting

26:29

money into an interest generating account,

26:31

tricking them into believing that this was a stable,

26:34

risk managed investment, one that was continually

26:36

liquid, and they indeed advertised

26:38

that you could withdraw your assets instantly, as

26:41

opposed to the reality that Cameron and

26:43

Tyler Winklevoss knowingly funneled

26:45

customer funds into an unstable

26:48

undercollateralized lender. They

26:51

intentionally and repeatedly misled customers,

26:53

claiming to an Earn investor on June twenty

26:55

seven, twenty twenty two, that they periodically

26:58

would conduct an analysis of their partner's

27:00

cash flow, balance sheet, and financial statements

27:03

to ensure that appropriate risk ratios

27:05

and healthy financial condition of

27:08

their partners happened, and that they said

27:10

their partners were vetted through a risk management

27:12

process, heavily implying that said process

27:14

would protect their customers. And

27:17

on October twentieth, twenty twenty two,

27:19

less than a month before, the winklevoss Is frozen

27:21

withdrawals from Gemini Earn, leaving

27:23

their customers unable to access their funds

27:26

or their interest digital currency

27:28

groups. CEO Barry Silbert, also

27:30

the owners of Genesis, met with

27:32

Cameron Winklevoss and told him that Gemini

27:35

was Genesis Capital's largest and most important

27:37

source of capital, and that they couldn't withdraw

27:39

Gemini earned customers funds without bankrupting

27:42

the firm. Cameron and Tyler

27:44

Winklevoss not only deceived customers,

27:47

but turned their assets into a load

27:49

bearing part of Genesis's balance

27:51

sheet so that they could funnel them into

27:53

billions of dollars of loans, which would

27:56

then go into places like Three Arrows

27:58

Capital and FDx. And

28:00

the Winklevosses have spent the best part of

28:02

a year playing the victim with pathetic

28:05

open letters that they post on Twitter to Barry

28:07

Silbert, demanding the returns of funds

28:10

that they knew were gone, claiming that Silbert

28:12

hid in his ivory tower and

28:14

he should take responsibility and

28:16

do the right thing, as Cameron

28:19

and his brother continued to mislead the world

28:21

about what actually happened. While

28:24

I'd never refer to the Winklevosses

28:26

as victims, one cannot

28:28

ignore how thoroughly fraudulent Barry

28:31

Silbert's empire had become. On

28:33

January twenty fourth, twenty twenty two,

28:36

Genesis Capital loaned one hundred

28:38

million dollars to DCG, the company

28:40

that owned it, due on July twenty

28:43

fourth, twenty twenty two, only

28:45

for Digital Currency Group to tell them that

28:47

they and I quote the suit literally

28:49

did not have the money. Barry

28:51

Silbert's solution was to and I quote repaper

28:54

the loan, delaying its due date by ten

28:57

months to May twenty twenty three, and

29:00

you'll be surprised to hear that they never

29:02

actually paid it back, along with several other loans

29:04

that were either unpaid or paid back

29:06

in shares of another part of Digital

29:08

Currency Group called Greyscale Bitcoin Trust,

29:11

another enterprise involved

29:14

in crypto. According to Sam

29:16

Bankman Freed's testimony during his own

29:18

criminal fraud and conspiracy trial,

29:20

Barry Silbert begged him for help,

29:23

which he declined to provide, despite Genesis

29:25

Capital having loaned FDx billions

29:27

of dollars in the past, which

29:29

trustees agreed to settle for a

29:31

puzzling one hundred and seventy five million dollars. And

29:33

just to be clear, the bankruptcy trustee

29:36

just was just like, I'll take one hundred and seventy

29:38

five million. I don't need the billion back, and

29:40

one can really see where they misled

29:42

Gemini and the Winklevoss brothers. The

29:45

one point one billion dollar promisory

29:47

note from Digital Currency Group to Genesis,

29:50

the one that was completely fake and was literally

29:52

just words on paper, was marked

29:54

in genesis balance sheet, which

29:57

Gemini was occasionally shown as one

29:59

point one b billion dollars in receivables

30:01

from related parties, with no designation

30:03

of what it was or how it was amortized. In

30:06

plain English, that just means to

30:08

any financial analysis that would appear

30:10

as just money in the bank. We are

30:13

receiving cash from someone one

30:15

point one billion dollars actually, and that's

30:17

good. That would make you a little bit

30:19

calmer. However,

30:21

one cannot ignore the fact that Gemini

30:24

knew that something was up. In a March

30:26

fifth, twenty twenty one email to an earn investor,

30:29

Gemini claimed that Genesis was and I quote

30:32

only lending assets to posited

30:34

it inter earned to institutional borrowers

30:36

in an overcollateralized way. Overcollateralization

30:40

meaning that they were loaning more

30:42

money than they were borrowing. How

30:45

does that work? It doesn't. Gemini

30:48

never sought to correct a coin Desk article

30:50

from February twenty twenty one that claimed,

30:53

and I quote that the Genesis

30:55

loans are overcollateralized, the

30:57

loans in question being the

31:00

ones where Gemini earned funds.

31:02

The funds that people put into Gemini earned

31:04

to earn interest were going It's

31:06

all just a big pile of dog shit.

31:25

In May twenty twenty one, Gemini's risk

31:27

management team determined that Genesis Capital

31:30

was and I quote highly leveraged,

31:32

with an over ninety five percent

31:34

debt to asset ratio, meaning that most

31:36

of their money was in debt rather

31:39

than things they actually had, and that Genesis

31:41

has low liquidity and that

31:43

the business is just able to cover its

31:45

short term obligations. Think

31:48

of it like living paycheck to paycheck to the

31:50

tune of billions. By August

31:52

twenty twenty one, Gemini Earn had

31:54

placed three billion dollars

31:56

of customer assets in Genesis's

31:59

hands, and this whole

32:01

situation enrages me. This

32:03

is one of the largest and most gratuitous

32:06

acts of negligence in the history

32:08

of finance, a craven and

32:10

deliberate swindle that flowed through

32:12

every vein of the organization. Gemini

32:16

intentionally and repeatedly misled

32:18

customers into investing in an

32:21

undercollateralized and risky lender

32:23

by dressing their fraud in the trappings

32:26

of conventional retail banking. Gemini

32:29

was well aware and continually

32:31

reminded of how unstable and

32:33

disorganized Genesis was and how risky

32:36

its customer's assets were held, and

32:38

yet it continued to hype the scheme in the hopes

32:40

that nothing would ever change. They put

32:43

billions of dollars into an entity

32:45

that from the very beginning they

32:47

knew was rotten. They knew could

32:49

barely cover their bills. They

32:52

could have predicted this, and indeed they

32:54

tried to. They just wanted to

32:56

keep the party going. Cameron

32:59

and Tyler Winklevos are villains,

33:02

and while they didn't outright steal customer

33:04

funds, they intentionally and willfully

33:07

misled customers into

33:09

investing in Genesis Capital, an

33:11

unstable and recklessly managed lender.

33:14

They were fully aware of these dangers,

33:16

yet they chose to launch a program that

33:19

their own risk management team believed

33:21

was riskier than other partners that Gemini

33:23

had considered loaning that money to,

33:26

saying in February twenty twenty two, the

33:28

Genesis Finances were weaker,

33:31

with a higher leverage ratio and low

33:33

liquidity ratio, meaning that

33:35

they were more risky and they had less

33:37

money to give back to customers when they need it.

33:40

And indeed, they worried that a market

33:42

downturn would mean that a fifty to sixty

33:44

percent default rate for Genesis was an

33:46

appropriate assumption, meaning that more

33:49

than half of their loans would go under,

33:51

and that a market downturn would mean that a fifty

33:54

to sixty percent default rate for Genesis

33:56

loans was an appropriate assumption, meaning

33:58

that more than half of their loans default

34:00

in the event that there was a change in the cryptocurrency

34:03

market. The risk management team

34:05

repeated this language several times, and

34:07

it took until May twenty twenty two for

34:09

Cameron Winklevoss to personally ask for a one

34:11

pager on the risk profile of Gemini

34:14

Earn and Genesis, the company that they had

34:16

lent at that time of rebillion dollars

34:18

two and indeed whether Ern adequately

34:21

compensated Gemini for the risk. In

34:23

plain English, they were saying, in

34:25

a war, is it really worth

34:27

it for us to risk all of this

34:29

customer money? And when they said worth it,

34:31

they mean is it making us enough money

34:33

for the pain in the ass we're creating. I

34:36

hope it wasn't. I hope they burned

34:39

for this one. Having read

34:41

the entire New York Attorney General suit,

34:44

I cannot find a single instance of

34:46

concern for the hundreds of thousands

34:48

of people the Gemini and Cameron

34:51

and Tyler Winklevoss failed despite

34:54

Gemini's pledge to uphold and I

34:56

quote, the highest level of fiduciary

34:59

obligations. The Winklevosses

35:01

represent their position as the trusted

35:03

stewards of the digital currency industry, claiming

35:06

to live by a policy of asking for permission

35:08

rather than forgiveness, as they brazenly

35:11

funneled billions of dollars of customer

35:13

funds into a lender that they clearly didn't

35:15

trust. They ignored the

35:17

science, they ignored the risk management

35:19

profiles, they ignored the worries,

35:23

and they continually rambled about

35:25

being licensed and regulated by the New York Department

35:27

of Financial Services, which means absolutely

35:30

nothing. As Gemini earned deposits were

35:32

being loaned to Genesis for the terms of

35:34

Gemini Earns agreement, which in turn

35:36

took them out of the regulation of

35:39

the mydfs. The

35:41

Winklevosses, the so called

35:43

self regulators of crypto, according to

35:45

Paul Vinya of The Wall Street Journal,

35:48

built a reputation as the trustworthy

35:50

party in a lawless industry, only

35:53

to use it as a means of making twenty

35:55

two million dollars in agent fees and ten

35:57

million dollars in commission from

36:00

risking billions of dollars of customer

36:02

funds and in this case

36:04

Gemini earned customers are likely going to lose

36:08

forty to fifty percent of their holdings if

36:10

they get anything back at all. A good comparison

36:12

point here is the creditors related

36:15

to Voyager, which was another cryptoponzi

36:17

scheme, only got back thirty

36:20

five percent of their holdings. Now

36:23

I have to get into some more annoying financial

36:25

stuff. You'll forgive me. I just want you

36:27

to know how loathsome these wet river

36:29

giants are. These boat boys

36:32

have really buggered this up. In

36:34

October twenty twenty three, the Winklevosses

36:37

filed something called an adversary proceeding in

36:39

court against Genesis in bankruptcy

36:41

court to be specific, seeking to recover one

36:44

point six billion dollars in value

36:46

for the benefit of earned users in an attempt

36:48

to paper over their financial mismanagement.

36:51

On August fifteenth, twenty twenty two, Gemini

36:53

accepted over thirty point nine million shares

36:56

of Greyscale Bitcoin Trust, a

36:58

STOG tied to the price of bitcoin, with the minimum

37:00

investment of fifty thousand dollars and the ticker of GBTC.

37:03

They accepted this as collateral for customer

37:06

funds invested in Gemini Earn, valued

37:08

at the time at around fifteen bucks

37:10

apiece, somehow taking on what they call an

37:13

and I quote initial collateral stake over

37:15

a year after the program started, just to be clear,

37:17

no collateral when they learned the money

37:19

out. It was worth around four

37:21

hundred and sixty three million dollars at the

37:23

time, and the Winklevosses for some reason

37:26

decided to foreclose upon it on November

37:28

sixteenth, twenty twenty two, selling

37:30

it when its price was around nine

37:32

dollars a share. This left them with two

37:34

hundred and eighty four million dollars a little bit over

37:37

that, or roughly sixty four point one percent

37:39

of its original value. They didn't

37:41

have to sell it, and indeed, one might

37:43

argue they legally shouldn't have because it

37:45

was collateral from alone, in

37:47

the same way that the bank can't

37:50

immediately foreclose in your home when

37:52

you're in it and you've missed a few payments. They

37:54

probably weren't meant to do so, But I

37:56

continue now. The Winklevosses

37:59

are claiming that they should be considered oded. The difference

38:02

between two hundred and eighty four million dollars and

38:04

the amount oede to earns creditors. Genesis

38:07

argues, I should say, the bankruptcy

38:10

trustee of Genesis, which has no interest

38:12

in anything to do what Genesis is doing other than

38:14

getting money back for the creditors, most

38:16

of which are institutional customers, come last.

38:19

That trustee is arguing that it actually

38:22

didn't give Gemini two

38:24

hundred and eighty four million dollars in credit. They

38:26

gave them thirty million, nine

38:28

hundred and five thousand, seven hundred and eighty

38:30

two shares of GPTC, and that the

38:33

collateral should be valued at the price of GBTC

38:35

today, which would value the stake that

38:37

they had given them at eight hundred million. This

38:40

is confusing, but what you need to realize

38:42

is Gemini earned customers have

38:44

lost somewhere between eight hundred million and a billion dollars.

38:47

Had the Winklevosses not sold their shares,

38:50

they would have got a lot more back. In

38:53

essence, the Winklevosses rushed to sell

38:55

these shares for effectively no reason, potentially

38:58

flaunting very basic foreclosure rule, and

39:00

Genesis argument is that they shouldn't have

39:02

to make up the difference for their massive

39:05

fuck up. Interestingly,

39:07

Gemini was also meant to receive another

39:09

thirty one million shares of GPTC

39:11

on November tenth, twenty twenty two, and Genesis

39:14

just didn't send it. And guess what the bankruptcy

39:17

court isn't going to help with that. Let's

39:20

be clear, both of these parties

39:22

are scum, and in a just society,

39:24

they'd rotten the depths of the worst jails under

39:27

the terms of genesis reorganization plan.

39:29

Under bankruptcy, Gemini earn

39:31

customers those people, regular

39:34

people, the people's college funds, the

39:36

bar mits for funds, the single mothers

39:38

who had lost their money. They'd be considered

39:40

Class four unsecured creditors getting

39:43

paid out behind Genesis institutional

39:45

creditors, secured creditors and priority

39:47

claims, which is why Genesis had to pay

39:49

one hundred and seventy five million dollars to fdx's

39:52

bankruptcy. A single mothers waited

39:54

to retrieve their son's college funds.

40:06

Yet there may be hope that Gemini Earned customers

40:09

will be made whole. Mere hours

40:11

after the original broadcast of this podcast,

40:13

the New York State Department of Financial Services

40:16

announced that Gemini had committed to return

40:18

at least one point one billion dollars

40:21

to EARNS customers, though only after

40:23

the resolution of Genesis Global Capital's bankruptcy.

40:26

Assuming that the bankruptcy courts approved the settlement,

40:29

Gemini Earned customers can, according to

40:31

Gemini, expect to receive approximately

40:33

ninety seven percent of their assets

40:35

in kind within two months of February

40:37

twenty eight, twenty twenty four, and the rest about

40:39

ten months after that. Unlike the proposed

40:42

FTX settlement, customers will also receive

40:44

the actual crypto they committed. In the

40:46

case of FTX, they're getting the dollar equivalent

40:49

on the day that FTX went bankrupt, which

40:51

means they're getting much less than they'd make if they were

40:53

selling their crypto today. This

40:55

means that these customers might actually make money

40:57

because on the day that Gemini Earned shut down,

41:00

bitcoin was somewhere between eleven and fifteen

41:02

thousand dollars. This means that they're

41:04

actually going to make a profit somehow, which

41:06

is pretty good. It's rare to find

41:08

good news here, and don't get

41:10

too excited yet, though all of

41:13

this is dependent on the tedious pace of

41:15

bankruptcy courts that in this

41:17

case especially, we've kind of considered Gemini

41:19

Earns customers second class citizens. This

41:22

landmark settlement is being spun by the Winkelvoss

41:25

brothers as and I quote a successful

41:27

resolution of Gemini Earn that

41:30

was reached and I quote again with Genesis

41:32

and other creditors, one in which these identical

41:35

River twins are considered. And I

41:37

can't believe they're willing to say this responsible

41:40

stewards of the crypto ecosystem.

41:42

This couldn't be further from the truth. Superintendent

41:45

Adrian Harris of New York State's Department

41:48

of Financial Services said in a statement

41:50

that Gemini had failed to conduct due diligence

41:52

on an unregulated third party later

41:55

accused of massive fraud, harming EARNED

41:58

customers who were suddenly unable to access their assets.

42:00

The nydfs IS investigation revealed

42:03

and I quote that Gemini engaged

42:05

in unsafe and unsound practices

42:08

that ultimately threatened the financial health

42:10

of the company, and they collected hundreds

42:12

of millions of dollars in fees from Gemini customers

42:15

that could have gone to Gemini, substantially

42:17

weakening Gemini's financial condition. The

42:20

Winklevosses are not responsible

42:22

stuarts. They're towering con artists

42:24

that got core and they were forced to pay up

42:26

only because they ran a foul of one

42:28

of the few responsible regulators left in

42:31

America. While I'm hopeful

42:33

to earn customer as a main whole, I

42:35

also fear that the bankruptcy courts may drag

42:37

their feet, and even if they don't,

42:40

kind of just want more here. The Winklevosses

42:43

aren't even the ones paying the fines. Their company

42:45

is. Gemini will pay the

42:47

thirty seven million dollar fine from the NYDFS,

42:51

and I think they're going to pay the one point one billion

42:53

dollars in cryptocurrency too. What's

42:55

weird is I can find no evidence about

42:57

where that money is coming from. I'm

43:00

also worried that Genesis, as they

43:02

have multiple times, will kind

43:04

of stone wall this deal. They want to get

43:06

out of this. They recently settled with the SEC for twenty

43:08

one million dollars, so they have a reason

43:11

to do well with the US government. But

43:15

I fear for this. All of this is condentent

43:17

on bankruptcy. Courts don't really care

43:20

regardless of this landmark settlement.

43:23

It is great, it's great that

43:25

the regulator has got the customer's money back,

43:28

but my blood is still boiling. Cameron

43:31

and Tyler Winklevoss will continue to run Gemini,

43:33

which is a multi billion dollar

43:36

financial services company, despite

43:38

the fact that it's very clear that they really

43:41

didn't do any due diligence, and that due diligence

43:43

which they did they completely ignored. They

43:46

knew that this was a bad deal.

43:48

They sent tens hundreds over

43:51

a billion dollars to a company

43:53

that they knew as early as twenty twenty one was

43:55

bordering on insolvent. Yet

43:58

they're still allowed to walk around as

44:00

free men and stewards of the

44:02

financial industry. It's kind of taken

44:04

the piss and even though

44:06

the New York Attorney General's sue is still out

44:08

there, it's not over yet, and they're still

44:10

seeking three billion dollars in restitution.

44:13

They're doing so from Gemini and digital currency

44:15

group, the Winklevosses are still left

44:17

unscathed. These are craven

44:19

fraudsters that continued again

44:22

and again to operate without oversight or

44:24

restrain, and now they're going to profit handsomely

44:26

off of an industry built on the back of

44:29

manipulating and conning people. And

44:32

despite how good this settlement is, these

44:35

guys are still billionaire boat boys. They're

44:38

unscathed. They robbed their own company,

44:40

they robbed their customers, They

44:42

laughed in our faces. And at this time

44:45

in society, when tens of thousands

44:47

of people are being laid off, when people can't

44:49

get houses, when the

44:52

regular person that cannot seek wealth,

44:54

people that go out and fuck over customers

44:57

again and again and again in broad daylight,

45:00

lying to us, lying

45:02

to you and me in a way that is so craven,

45:05

nothing happens to them. Oh god,

45:07

they got slightly embarrassed. They

45:09

can't be kicked out of Gemini. They own the bloody

45:11

thing. The crypto industry isn't

45:13

attacking them, despite the fact that two

45:15

of your so called stewards are

45:18

fucking con artists. Anyone

45:21

who's listening to this, who's a big

45:23

fan of crypto, who believes that these

45:25

guys are good people, or indeed that

45:27

really there are any good people in this industry. Should

45:30

read the New York Attorney General suit. They

45:33

should read everything that the Winklevosses

45:35

did. They should listen to this podcast

45:37

again, perhaps, and recount

45:40

the many ways, the manifold ways

45:42

in which these two giant freaks

45:45

shat all over their customers, lied to

45:47

them, lied to regulators, lied

45:49

to their own company, and sat

45:52

there with their thumbs up, their asses not

45:54

digging into their own personal piggybanks,

45:56

making the dumbest calls again and again,

45:59

and nothing has happened to them.

46:02

I pray Letitia James

46:04

and then New York Attorney General's Office finds

46:06

a way to exile these two bastards

46:09

from this goddamn financial services

46:11

industry. But I'm gonna be honest,

46:14

I'm not holding my breath. Thank

46:25

you for listening to Better Offline. It's a

46:27

weekly tech podcast. You can find it on

46:29

iheartradios, app or anywhere else you find

46:31

podcasts. The editor and composer of the

46:33

Better Offline theme song is Matasowski.

46:36

You can check out more of his music and audio projects

46:38

at matasowski dot com. M

46:40

A T T O s o w

46:43

Ski dot com. If

46:45

you want to get in touch with me, email me at

46:47

easy at better offline dot com,

46:49

or visit me at edzitron on Twitter or

46:52

zitron dot Besky dot Social on Blue Sky.

46:54

Check out my newsletter and more of my work

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on better offline dot com. Thank you for

46:58

listening.

47:06

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47:08

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47:13

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