On the 23rd of January 2023, David Bailey, the CEO of UTXO Management, shared details of DCG violating securities law in its dealings with 3AC’s share.
Holy sh*t people. DCG took control of 3AC’s GBTC shares via this ridiculous 10 year promissory note at 1% interest… and then turned around and used them as collateral in violation of securities laws. DCG NEVER PUT UP CASH FOR THE SHARES AND PLEDGED THEM TO GEMINI FOR ???
— David Bailey🇵🇷 $0.65m/btc is the floor (@DavidFBailey) January 23, 2023
According to David, DCG took control of 3AC’s shares on the Grayscale BTC fund using a 10-year promissory note at a 1% interest. Then they pledged the shares as collateral to Gemini, which is a violation of US securities law.
DCG didn’t put up cash for the shares. Thus, they couldn’t pledge them to Gemini. Since Genesis is a subsidiary of DCG and in partnership with Gemini, why didn’t they pledge the assets directly? And what were they aiming to get in exchange for the shares they don’t own yet?
Here’s the background behind David’s post. 3AC borrowed funds from Genesis valued at $2.4 billion and placed their GBTC shares as collateral for the transaction. 3AC crashed, so they couldn’t pay back, which led to a transfer of ownership of the GBTC shares. Genesis also crashed during the crypto winter and had a net debit of $1.2 billion after liquidation. DCG, which is the parent company of both Grayscale Investment and Genesis, assumed the remaining $1.2 billion and issued a $1.1 billion promissory note to Genesis at 1% that was going to mature in 10 years.
Genesis’s partnership with Germini was to create “Gemini Earn,” which was advertised to pay its investors up to 8% annually. But Genesis stopped withdrawals, and so did Gemini Earn. after some inquiries, Genesis promised everything was in order, as DCG had promised them $1.2 billion.
All was on track for a couple of months till it was discovered that the $1.2 billion promised by DCG for Genesis operations was a lie it was just a note that they couldn’t liquidate for 10 years, then FTX crashed. This led to a bank run that exposed the liquidity situation of Genesis, who then tried to raise an extra $1 billion from investors to no avail.
In light of the situation, the founders of Gemini, the Winklevoss brothers, started accusing Genesis of fraudulent activities since they reported a 10-year promissory note as a current asset, misleading people into believing they were still solvent. In response, DCG claimed that Gemini was acting first to shift blame from themselves and that they would work closely with Gemini to resolve the issue.
Now it seems DCG’s promissory note was in cohort with Gemini, but little is known of what they were expecting in exchange.
