Enron, FTX...DCG Next?
Trevor Ward, CPA
I ghostwrite ?? LinkedIn and X content for founders and brands in crypto
Elon and Zuck aren’t the only rich guys beefing online (though?that battle ?is easily the best thing on the internet now).?
Cameron Winklevoss, Co-Founder of crypto exchange Gemini, and Barry Silbert, Co-founder and CEO of crypto conglomerate Digital Currency Group (DCG), are back at it after?Gemini sued DCG, alleging fraud .?
This battle has been brewing since January when Cameron Winklevoss publicly called out DCG Founder and CEO Barry Silbert, saying that Barry’s company DCG owes the Winklevii’s company Gemini, specifically Gemini Earn customers, $900 million. Cameron Winklevoss called out Barry in an?open letter on Twitter . We covered the whole saga?here ?and?here .
We're all wary of fraud at this point in crypto’s history, so we can’t take Gemini’s claims lightly. Plus, accounting is at the center of this entire controversy, so we have?to?cover it. Some are even saying that if Gemini’s accusations are true, there are many?similarities to Enron .?
Amid the current legal tango between Gemini and Digital Currency Group, a certain tweet is suddenly popping back into our collective memory.?
Way back in the ancient times of November 2021, Barry Silbert, cryptically tweeted, "Now it's my turn, Sam."
And who promptly fired back? None other than Sam Bankman-Fried, the ex-CEO of FTX.
We really hope Barry wasn’t saying, “It’s my turn *to commit a major fraud" but at this point, nothing surprises us in this industry.
Let’s get into the nitty-gritty, shall we??
P.S. Welcome to our?73 new subscribers!?Please keep your hands, arms, and accessories inside the vehicle, and no flash photography.?
Gemini Sues DCG
First, we’ll assume that you aren’t some psychopath that spent their weekend studying the?filed complaint ?against DCG; we’ve got you covered there. The lawsuit revolves around the crypto world, but the accusations are as old as time: fraud and deception.?
The complaint alleges that DCG and Silbert orchestrated a fraudulent scheme to convince depositors, including Gemini users, to continue lending substantial amounts of cryptocurrency and U.S. dollars to DCG’s subsidiary, Genesis. Gemini is seeking to recover damages and losses incurred due to DCG’s and Silbert’s alleged false, misleading, and incomplete representations.
Now, here's where the plot thickens. According to the complaint, "From the beginning, Genesis – acting in concert with Defendants and with Defendants’ active support and encouragement – induced the Gemini Earn Lenders to lend by touting Genesis’s purportedly robust risk-management practices and a supposedly thorough vetting process of the counterparties to which it re-lent the assets. Those were lies."?
Them be fighting words...
Genesis was reportedly recklessly lending large amounts to a counterparty that DCG and Silbert knew was using these funds to fuel a risky arbitrage trading strategy. The complaint further alleges that when the arbitrage strategy began to fail in early 2021, causing significant losses for Genesis’s loan counterparty, DCG and Silbert did not disclose the enormity of Genesis’s exposure to a single counterparty. Instead, they allegedly allowed that counterparty to keep those enormous obligations outstanding for another whole year, continuing to reap huge fees on the loan portfolio at Genesis and on the ballooned Bitcoin Trust.
The situation took a turn for the worse in late spring 2022 when Singapore-based hedge fund Three Arrows Capital (3AC) collapsed and entered liquidation proceedings. Genesis had outstanding loans to 3AC totaling $2.3 billion, and the collateral held against those loans—which Genesis had represented was generally valued at 80% of its exposure to 3AC—was worth less than 50% of the outstanding liability.
The complaint alleges that rather than acknowledging this insolvency, DCG and Genesis lied again, falsely representing that DCG had absorbed the losses on the 3AC loans at the parent level, and that it was therefore “business as usual” at Genesis. Silbert is accused of personally going to great lengths to keep creditors in the dark, perpetuating the lie that DCG had stepped in to “absorb” the 3AC losses.
Alright, now that we covered the main points of the case, let’s dive into DCG’s response and, most importantly, the debits and credits of the whole ordeal.?
Will DCG Join Enron and FTX?
First off, DCG's response to the lawsuit was, let's say, less than stellar. It was akin to a kid caught with their hand in the cookie jar, mumbling something about a diet plan.?Adam Cochran? and?Tyler Winklevoss ?certainly didn't seem impressed.
Ram Ahluwalia ?drew some chilling parallels between DCG and Enron, and if you're not already shivering, you should be. The similarities? Complex financial reporting, unusual loan agreements, overstated risk management capabilities, failure to inject necessary capital, and misleading the public and stakeholders. Sound familiar?
Genesis, like Enron, allegedly sent false statements to borrowers, suggesting it had sufficient current assets. They also conducted unusual related party transactions, lending to its parent company, DCG, on unsecured and off-market terms. This is eerily similar to Enron's use of Special Purpose Entities (SPEs) to hide debt and inflate profits.?
Genesis also claimed to have sound risk management practices, but made extraordinarily risky loans. And just like Enron, DCG failed to provide the necessary capital to Genesis, instead engaging in an accounting transaction.?
Now, here's the kicker. Genesis was insolvent as early as July 2022, according to an analysis by?ChainArgos . The total assets vs liabilities showed negative equity. Yet, Genesis continued to present itself as solvent, a move that could be seen as fraudulent.?
So, what does all this mean? Well, it's like watching a slow-motion car crash. You can see it happening, but you can't look away. The allegations against DCG and Genesis are serious, and if proven true, could have far-reaching implications for the crypto industry. But for now, we'll just have to wait and see how this legal drama unfolds. We’re just here for the popcorn.
Larry Fink’s Tour de Bitcoin
Let's switch gears and quickly follow up on our?last entry ?on the institutions moving into crypto.?
BlackRock's CEO, Larry Fink, recently appeared on FoxBusiness and gave the crypto community something to cheer about (or thumb their nose at – more on this in a sec). Fink, who runs one of the world's largest asset managers, expressed his belief that Bitcoin could 'revolutionize finance' and serves as 'digitized gold.' Quite a shift from his 2017 stance when he labeled Bitcoin as an 'index of money laundering.'?
But let's not get too carried away. Some skeptics are pointing out that these shifting views might be more about financial interests than a newfound love for Bitcoin. After all, BlackRock has a Bitcoin ETF application in the pipeline.?
As Jim Bianco, president of Bianco Research, pointed out, “Crypto is losing the plot. It is supposed to be about decentralization, permissionless and self-sovereignty. Getting excited that it is going to become a more accessible poker chip is nice and will help degens in the short term, but it will not help to fulfill the real promise of crypto.”?
Jim Lourio, Managing Director of TJM Institutional Services and a veteran futures and options trader, echoed these sentiments, stating that Bitcoin ETFs and exchanges "ignore what some believe is the single most important feature of bitcoin, the ability to control their funds without the need to place trust in a third-party to manage the asset.”
The anticipation around a Bitcoin ETF approval this year is also heating up. Some speculate that the ongoing discussions and requests for additional information between the SEC and applicants like BlackRock might indicate a path toward approval. However, the SEC recently?informed Nasdaq and Cboe ?that applications from BlackRock, Fidelity, and others aren’t sufficiently clear and comprehensive. On the other hand, a former SEC Chairman?recently stated ?that spot Bitcoin ETFs should be approved.?
领英推荐
So, what's really going on here? Are we seeing a genuine shift in sentiment towards Bitcoin, or is this just a strategic move by the big players to get a piece of the crypto pie? As always, in the world of crypto, the only certainty is uncertainty. Stay tuned, folks!
Spotlight????- EthCC 2023?
Anybody’s summer travel plans include Paris??! EthCC (Ethereum Community Conference), if you’re unfamiliar, is a premier gathering for blockchain enthusiasts, developers, and industry leaders, providing a platform for knowledge sharing and networking within the Ethereum ecosystem.
Bitwave will be on the ground at the event, with CEO Patrick White speaking at one of the side events as well. If you're in the City of Lights, don't miss the opportunity to connect with our team – we'd love to meet and connect with fellow web3 enthusiasts who share our passion for the decentralized future.
The Water Cooler ??
Things worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.
???????Featured Funding Find:?AlloyX Raises $2M Pre-Seed Round, Launches Real World DeFi Asset Vault
What is this:?
AlloyX , a decentralized finance (DeFi) protocol, recently closed a $2 million pre-seed funding round led by Hack VC, with additional participation from Circle Ventures, Digital Currency Group, Stratos, Lecca Ventures, MH Ventures, very early Ventures, Archblock, dao5, and Credix Finance.
AlloyX is building a blended investment vault, which combines overcollateralized tokenized private credit investments (in other words, digital tokens backed by real-world assets like loans or debt instruments) with a smart contract for tokenized U.S. Treasury bills.?
Why we noticed:
This one leans more on the “finance” side of “web3 accounting and finance,” but we’re here for it. As usual, we’re looking at this event, asking, “What does (or could) this mean for the future of this industry?” In this case, by enabling investors to create diversified investment strategies in real-world assets and providing liquidity to loans on-chain, we think AlloyX is onto something really interesting for bridging the gap between DeFi and TradFi.?
You’ve got tokenized U.S. Treasury bills blended with an array of real-world assets to balance yield vs. risk in what the company claims is “the first DeFi vault of its kind.” Integrating tokenized credit and real-world assets through a decentralized protocol opens up new opportunities for investors, including decentralized autonomous organizations (DAOs) and institutional investors, to access attractive yields and liquidity in the Real World Assets (RWA) space.?
This is yet another development signifying the growing recognition and adoption of DeFi solutions in the accounting and finance industry, as well as the potential for decentralized protocols to reshape how investments are made and managed.?
AlloyX’s strategy includes further DeFi protocol integrations and launching more investment vaults (their first real-world assets vault will go live this quarter). For our part, we’re curious about further innovation and advancements in the realm of tokenized credit and decentralized finance, potentially disrupting traditional financial models and offering new avenues for investment and risk management.
What do you think about this story? Do you see a different angle here than what we covered? We’d love to hear from you! Hit me up in the comments on this article. I guarantee I'll read every message.?
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Other Significant Findings
And now for something completely different - we gotta at least mention Instagram Threads up in here today. As a recap, Threads is the Zuckerverse version of Twitter, which launched last week and which we’re still not sure we’re going to join or not. You may or may not have heard users gradually discovering a not-so-cool feature of the platform: even though you can join Threads by a single click from Instagram, you can’t delete your Threads account afterward?unless you also delete your Instagram account.??
But that may just be a “for now” kind of thing, because the head of Instagram has stated an intention to build support for ActivityPub, the protocol behind Mastodon (“free and open-source software for running self-hosted social networking services”) into the app.
In theory, this means being able to leave the platform AND take your audience with you. To my knowledge, this is the first time we've seen this kind of friendliness toward a decentralized/web3 ethos from a major social network. Up to this point, it's been notoriously difficult if not outright impossible to keep a social media audience without being tied to whatever platform allowed you to grow that audience. As a content creator myself, this is pretty interesting to me and I wanted to share it with you as a little side note.?
Could it be that Instagram will actually lead social media into a decentralized future?
Also let’s have a little chuckle that we’re emailing you a screenshot of a Tweet that features a screenshot of Threads. The Russian-nesting-doll-ification of social media sharing continues.
Extraordinary Items ??
Any accountants want to check the math on this?
All right, that's all we've got for this Entry, friends.
“Calc”-you-later, ???
Trevor
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Helping you with hassle-free Bookkeeping| Director at Beyond Books | Content Creation on Bookkeeping & Finance
1 年Fraud allegations in crypto battle. Need thorough investigation for clarity.
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
1 年Thanks for Sharing.
Attorney At Law at CIVIL COURT CASES
1 年Very nice