Better Offline - How The Winklevoss Twins Lost A Billion Dollars

Episode Date: March 1, 2024

Though the Winklevoss brothers are best known for their role in the early days of Facebook, you'll be surprised to learn that they recently lost customers at their cryptocurrency exchange over a billion dollars through a shady loan scheme. In this episode, Ed Zitron walks you through how the two identical riverboat giants went from being conned by Mark Zuckerberg to conning over a hundred thousand people into putting their cryptocurrency in the hands of the world's worst investor.  Better Offline Theme Song Spotify Pre-Save Link - https://distrokid.com/hyperfollow/mattosowski/better-offline-theme-song-2?utm_campaign=website&utm_medium=Email+&utm_source=SendGrid See omnystudio.com/listener for privacy information.

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Another podcast from some SNL late-night comedy guy, not quite. Unhumor me with Robert Smygel and friends. Me and hilarious guests from Bob Odenkirk to David Letterman help make you. you funnier. This week, my guest, SNL's Mikey Day and head writer Streeter Seidel, help an Acapella band with their between songs banter. Where does your group perform?

We do some retirement homes. Those people are starving for banter. Listen to humor me with Robert Smigel and friends on the I-Heart Radio app, Apple Podcasts, or wherever you get your podcasts. I'm Joey Dardano, and on my new podcast, Hope from a Hypocrite, I'll be changing lives, helping people in

need with thoughtful solutions. Sike, I'm a comedian. I'm a qualified to give good advice. Join me and my comedian friends as we riff, rant, recommend some of the most legally dubious advice known to me. This is Help from a Hypocrite, the worst advice from the dumbest people you know. Listen to Help from Hypocrit Wednesdays on the Iheart radio app, Apple Podcasts, wherever you get your podcasts. AllZone Media. Hello and welcome to Better Offline. I'm your host Ed Zittron. This is a weekly tech show where I walk you through the good, the bad, and the student.

of a multi-trillion dollar industry that's changed and monetized almost every part of our lives. So you're likely aware of the tale of Sam Bankman-Free, the curly-haired fraudster who con con millions of people out of billions of dollars, crushing the cryptocurrency markets in the process. He did so by creating a cryptocurrency exchange called FTX, where people could buy things like Bitcoin and Ethereum, except it had one little catch. He was stealing the customer funds, keeping only a little around at any given time for people to withdraw. This meant that when hundreds of thousands of people went to withdraw their funds at once, the entire scheme fell apart and FDX collapsed.

Bankman Fried currently sits in prison awaiting sentencing after being convicted and several counts of fraud, including wire fraud and wire fraud conspiracy, which is appropriate, as him and his co-conspirators at one point genuinely used a group called Wirefraud chat, and I am not kidding. Yet this isn't about SBF. There are actually two other villains in this story. Two villains of the recent crypto crash

that you might have missed despite the fact that they're both six foot five and lost their customers over a billion dollars. I'm talking about Cameron and Tyler Winklevoss, two brothers, both alike in dignity and appearance, the gay notoriety by suing Mark Zuckerberg of Facebook, now known as Meta, in the early days of the social network, back in 2004. In the Winklevise defense, Zuckerberg digs screw them as a student at Harvard, where he pretended to work on the Winklevoss's social network, Harvard Connect,

while actually working on the earliest version of Facebook, effectively sabotaging the competition from within. When Facebook finally launched, the identical, moist riverboat giants alleged that Zuckerberg had stolen their idea for a social network and used their code, resulting in a years-long back and forth, and a $65 million settlement that the Winklevold bosses were forced by a court to accept in 2011. I think that had Zuckerberg kept his filthy little hands to himself, we'd likely never have heard of Tyler and Cameron Winkelvoss. And I believe the world would have been a better place.

If they weren't already, the Winklevoss twins were now millionaires. In 2010, Aaron Sorkin's Oscar-nominated retelling of the Facebook origin story, the social network, would raise their profiles even further, portraying them as victims of a calculated misanthropic opportunity. You could almost feel sorry for them, even if they were portrayed by Army Hammer, the famous cannibalism fan and potentially perverted enjoer of other things too. But you really shouldn't feel Army Hammer, but you definitely shouldn't for the Winklevosses either. In the years following their legal dust-up with Mark Zuckerberg, the Winklevoss twins remained active in the tech scene,

launching an investment fund in 2012 that focused on early stage consumer-centric startups. A year later, they acquired $11 million of Bitcoin, and while it's unclear exactly how much they bought, a New York Times article about their acquisition, which, of course, featured no verification of that actual purchase, ran on April 11, 2013, when Bitcoin was around $114.14 a piece, meaning that the Winklevoss brothers likely bought somewhere in the region of 90,000 Bitcoin. Based on today's valuation, those holdings would be worth in excess of $3.8 billion. It was a big, stupid bet, and it absolutely paid off. In the same year, they'd pursue creating a Bitcoin exchange-traded fund, also known as an ETF,

a thing that allows you to invest in something, in this case Bitcoin, much like you were trading a stock, without all of the complexity and risk associated with actually owning the thing in question, in this case, Bitcoin. While this never materialized, the Winklevoss is cozied up with New York's Department of Financial Services and realized they could found their own cryptocurrency exchange to rival the other American rival, Coinbase, which had launched two years earlier. A cryptocurrency exchange, as I've discussed, is a place where you can buy and sell your crypto, using generally a credit card or a debit card.

At the time, very focused on debit cards, though. In 2015, they launched Gemini. What would eventually become a major and highly respected cryptocurrency exchange that from the very beginning tried to swaddle its ugly and often fraudulent industry in a blanket of legitimacy, winning approval from New York State regulators to provide certain financial services. Gemini now sits as one of the top ten largest cryptocurrency exchanges in the world and one of the few remaining American exchanges. One might be forgiven for thinking they were trustworthy.

And they'd be wrong. Toward the end of 2020, the price of cryptocurrencies began to climb rapidly, with Bitcoin climbing from $19,000 in December to over $40,000 in January, cresting over $50,000 a Bitcoin by March 2021. The cryptocurrency industry would see more venture investment in the first quarter of 2021 than it had in the entirety of 2020, with 129 crypto and blockchain startups receiving $2.6 billion in the space of three months, compared to 341 cryptocurrencies receiving $2.3 billion in the entirety of 2020. As an explanation for those listeners that don't know, venture capital investments are generally

investing in equity in the companies. They buy a piece of the company for a certain amount of money, venture capitalists, of course, taking the risk that the company will fall apart. What differs with a lot of these companies is that they will sometimes sell you a token. This isn't necessarily relevant for this story. I just want you to know the fact that this industry, at its core, is based on the idea of basically selling securities, you know, like stocks, but hiding from the law and conning people. That's not how the Winklevosses fucked people over, though.

No. So another thing to realize about these crypto companies is that they didn't really do anything. They'd sell tokens. They would claim that they would build something in the future on something called a roadmap. They would sometimes have a white paper which would describe some underlying technological stuff,

but there were really none of them that had a feature or a function. They were mostly just non-entities that promised things, but because you could trade their tokens, which, much like a stock, should have been regulated by the government,

but were not because they were such new financial devices and objects. Well, this whole market was growing and growing and growing. And along with it, the Winklevosses were getting even richer. Then they got greedy. To understand how the Winklevosses bungled a billion dollars, I have to give you a little bit of background on the last few years of hell in the cryptocurrency industry.

In February 2021, Gemini, that's their cryptocurrency exchange where you could buy and sell different cryptocurrency, began something called Earn, their Earn Program. It was an interest earning program, where users could, feed their cryptocurrency, like Bitcoin, for example, into Gemini through a few clicks, and earn interest. And you should put quotation marks around those. So you would get a percentage return on the crypto that you put into Gemini earn. One might be forgiven for believing that as a result they were putting money into some sort of secure, protected account like a certificate of deposit. They really were not. I must be clear how not like a bank this was.

Gemini, a New York-based trust company that promised security protocols on par with those offered by top financial institutions, claimed to generate this interest by working with, and I quote, institutional borrowers who were partners who had been vetted through Gemini's, and I quote, again, risk management framework. What's also important to know is that none of what you're about to hear was a security issue. It was entirely the result of two greedy riverboat giants pissing away money because they were greedy little pigs. And as a result of trusting this company that was a trust company, a New York-based trust company, a regulated one allegedly, but not regulated for the thing that I'm about to tell you,

people trusted them. And as a result, customers deposited somewhere between $700 million and a billion dollars of funds into Gemini earn, believing that Gemini was offering something akin to an interest generating savings account. After all, Gemini had institutional partners, and that is plural, that's what they said, and they had vetted said partners through their collateralization management process, which means, in the case of a loan, you collateralize the loan, you give them something. For example, you would collateralize the loan for a house by giving them a down payment of 20%. In the case of a loan, you might borrow a certain amount of money, but put some money down so they have something in the event that you default on the loan.

In plain English, they were claiming to work with institutional investors like banks and hedge funds that would pool Gemini-earned customers, so people giving them their Bitcoin and Ethereum and all that. They would pool those resources to allow them to get involved in big trades with better returns than users would be able to get on their own. Indeed, classical financial markets have larger loans that have preferential rates and get involved in deals that the regular customer would not be able to. That's what people thought they were getting. The other suggestion was that Gemini had diversified its risk, and there's actually an

archived version of the Gemini Earned page in 2021 that said that Gemini worked with multiple accredited third-party borrowers to do so. As a result, as a customer, you may believe, well, if one fails, that wouldn't be the end of the world. Right? It's also important explaining that the way that a lot of these companies in crypto made their money was by loaning it to others in the form of margin trading. where investors, both retail and institutional,

borrowed a massive amount of cryptocurrency in return for collateral, which was usually less than the amount they were borrowing, as I mentioned, kind of like putting a down payment for a house. Except the asset is a token on a blockchain, like Bitcoin. In fact, as you'll find out, most of the cryptocurrency industry was held up by these loans. Now, all of this supposedly legal and cool and normal stuff, all this sounded very trustworthy. This was, of course, not the case. Neither was it the case that

Gemini had diversified their investments at all, or actually really done any risk management of any kind. Although Gemini had the outward appearance of being a highly diversified, sophisticated, and well-run financial services business, it actually wasn't. They placed the vast majority of their eggs in one single bar scam. And that was a cryptocurrency brokerage, called Genesis. Genesis provided a variety of cryptocurrency-related services for large institutional investors and high net worth individuals. Their money was made by offering these institutions and individuals loans, leveraged by their cryptocurrency, which Genesis would in turn invest

theoretically profiting in the process, through their access to large deals, as I previously mentioned. When I say leverage, I mean the very simple thing of, I give you some money and then you lend me money in return. And there is usually some sort of interest deal there. There is some way where both parties benefit. Sometimes it will be that they are borrowing an asset like Bitcoin where the price can change. And the collateral they give may be in excess of the amount they're borrowing in dollars, but the price of Bitcoin may go down. Thus, as a result, if I loan somebody a billion dollars of Bitcoin, but the price of Bitcoin went down and they gave me, I don't know, one point something billion in return. They're gambling the idea that Bitcoin will go up from there,

and I'm gambling that it will go down and I would have made money on that loan. This is a messy, stupid, assholes industry, one built on sand, and you're about to find out how badly it can go. So, Genesis was also part of a huge empire called the Digital Currency Group, a holding company for multiple different parts of the cryptocurrency ecosystem, including cryptocurrency news outlet coin desk, which, ironically, was a large part of the reason that Sam Bankman-Fried has gone to prison. I could do an entire episode on this company, but all you really need to know is that they own Genesis, and while Genesis was meant to be independent, it absolutely was not. And what's really important to know is how stupidly Genesis was run.

They weren't simply bad at investing. They were so bad at investing that they somehow managed to invest in not one but two of the entities that brought down the entire cryptocurrency industry in 2022. Their first mistake was investing $2.4 billion in Three Arrow's Capital, a major cryptocurrency hedge fund that ended up being a significant scam that also led to the collapse of FTX, the other entity that Genesis had trusted with its capital. And again, that's the subject of another episode. Three Arrow's Capital was a Singapore-based cryptocurrency hedge fund with over a decades worth of history

run by two guys. It started life in arbitrage, essentially making money on the differences in prices for products in two separate locations, with a niche in smaller traditional currencies like the Thai bat and the Indonesian rupee. This business model often relied on a healthy relationship with legacy banks. While it had some success on that front, its relationship soured in 2017, forcing the company to pivot to the wild west of cryptocurrency. It started investing its client's money in early-stage crypto projects,

hoping for a big return when their values went up. One of these projects was Terraluna, an algorithmic stablecoin, which in plain English is meant to be a token on the Ethereum blockchain that is always related to the price of a dollar. Except in this case, you may have heard that word, algorithmic. You know what the problem with algorithms is? They need to be perfect and they almost never are. But this bit kind of requires some explanation, so bear with me.

Cryptocurrencies like Bitcoin and Ethereum, they're wildly volatile, which is bad if you want to actually transact with them. If a currency could be 25% more or less the next day, how do you actually know what to charge for something? And that's where stablecoins come in. These are cryptocurrencies that aim to fix their value to that of a traditional fiat currency like the US dollar or the euro. Most stable coins have, or say they have at least, a cash reserve equivalent to the amount of tokens in circulation. Terra Luna differed, using an algorithm to maintain price parity, rather than any reserves. The algorithm worked until it suddenly and violently did not.

On May 3rd, 2022, a Terra stable coin was worth $1. A few days later, it was worth a fraction of a penny. The better off-line theme sung by Matt Asowski will be dropping this Friday, March 1st on all streaming platforms. You can find the Spotify free save link in the episode notes. Another podcast from some SNL, late night comedy guide, not quite. Unhumor me with Robert Smygel and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk, to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and headwriter, Streeter Seidel,

help an Acapella band with their between songs banter. The worst singer in the group. The worst? Me. Is there anything to the idea that because you're from Harvard, you only got in because your parents made a huge donation. The yard birds, right? That's the name.

The Harvard Yard. They're open. Do you have a name suggestion? We're open. Since you guys are middle-aged. One erection. Listen to humor me with Robert Smigel and Friends on the I-Heart Radio app, Apple Podcasts, or wherever you get your podcast.

Huber me. I need some jokes to make me seem funny. Run a business and not thinking about podcasting, think again. More Americans listen to podcasts than ads supported streaming music from Spotify and Pandora. And as the number one podcaster, IHeart's twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only IHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business.

Think IHeart. Streaming, radio, and podcast. Call 844-844-Eyehart to get started. That's 844-8-4-8-4-I-heart. The story I've told myself about love or relationships can then shake my behavior, and that can lead me to sabotage the possibility of connection. This Mental Health Awareness Month, tune into the podcast deeply well with Debbie Brown

and explore the journey of healing, self-discovery, and returning to yourself. We explore higher consciousness emotional well-being, and the practices that help you find clarity, peace, and self-mastery in a world that can feel overwhelming. The world is becoming lonelier. We're not becoming more social and connected. We're becoming more individualized, but we actually meet people in connection. If you've been searching for a soft place to land while doing the work to become whole,

this podcast is for you to hear more. Listen to deeply well with Debbie Brown from the Black Effect Podcast Network. on the Iheart Radio app, Apple Podcasts, or wherever you get your podcast. Terra Luna collapsed in May 22, with the loss of $45 billion in market capitalization, meaning the total value of all of the tokens on the blockchain. Three Arrows Capital's entire $500 million position in Luna was now effectively worthless. This collapse also shaved off an estimated $1 trillion value from the $1,000,000,000,000, value from the wider crypto market.

Three Arrow's Capital, the so-called hedge fund, to quote research firm FS Insight, was an old-fashioned made-off-style Ponzi scheme, where founders Suzu and Carl Davis would use client funds to borrow from basically anywhere that would let them in the entire crypto ecosystem. And because Three Arrows didn't bother collateralizing these loans sufficiently or managing the risk behind them, there was very little money to return to customers. The failure of Three Arrow's capital left a multi-billion dollar hole in Genesis balance sheet that it papered over with a $1.1 billion promissory note from its holding company Digital Currency Group that was due in 2032.

This sounds like it would be helpful, right? The problem is, this maneuver never appeared to involve the conveyance of any actual money. It pretty much existed only to pretend that Genesis had another 1.1 billion. billion dollars on the books. To be abundantly clear, no money actually ever got sent to anybody. This promissory note only existed to mislead creditors about the financial health of Genesis. As you can understand, those creditors would probably want to know, well, okay, do you have enough money in case we need our money back? Little bit of a spoiler for you, they didn't.

The Terra Luna and Three Arrow's Capital Fiasco trashed the value of cryptocurrencies, with Bitcoin dropping from around $30,000 in May 2020. to less than 20 grand in October. And in November 2022, FTCS collapsed as a result of the Coin desk article, again, owned by DCG, that revealed that most of FTC's assets were held in FTT, a token that they owned the majority of and could never sell because doing so would crash the FTT market, making said asset worthless. Indeed, in cryptocurrency, this is a big problem.

If you have a big market and say there's $20 billion of a token out there, but one person owns a billion of it, they actually can't sell it, because in doing so, the market would suddenly think, oh, this is worth less because someone wants to dump him. The result of this revelation that FTX was holding most of the world's FTT, and thus could never sell it, and indeed that in the process made their company pretty much insolvent, this left both retail investors and institutional investors out to drive. Now, eager-eyed and eager-eared listeners may have probably guessed by this point that Genesis was inexorably entangled in this disaster. Quickly going from saying that they had no material exposure to FDX on November 8th,

22 to then saying they had $7 million of exposure on November 10th, to saying that they had $175 million in exposure a day later, to saying that they needed to freeze all customer withdrawals and new loans entirely, and that they would likely be going bankrupt, which they said on November 18th, 2022. They entered Chapter 11 bankruptcy in early 2023. The digital currency group, which of course owns Genesis, had also borrowed $575 million from them, which has since led to the hilarious situation of Genesis suing the company that owns it as part of its own bankruptcy proceedings.

This is the company that the Winklevoss twins and Gemini, their cryptocurrency exchange, had allegedly run through their risk management framework. And despite allegedly reviewing the collateralization management process, that Genesis underwent, which means how they collateralized the loans, what money they took in to make sure that the loans did not just fall apart if something bad happened. Well, Gemini hadn't diversified their investments at all. They put over a billion dollars of customer funds into Genesis, money which is most likely gone now. In many respects, Gemini was the cryptocurrency equivalent in Green Seal Capital, a company that at one point was the highest profile lender in the supply

chain financing space, touting former British Prime Minister David Cameron as one of its advisors. Like Gemini, Green Seal Capital pretended to be a diversified business when in reality it borrowed money from large institutional investors to lend to a handful of companies. The circumstances behind its collapse are slightly more complicated than those of Genesis, but not by much. Greensell's implosion in 2021 rippled throughout the industry, contributing to the demise of the already troubled Credit Suisse, which were acquired, really they were rescued, by UBS in early 2023 for the bargain price of just $3.25 million. Since November 2022, when Gemini froze withdrawals from Gemini Earned, the interest-bearing account,

the Winklevosses and Barry Silbert, CEO of Digital Currency Group, who as I've mentioned are technical owners of Genesis, have engaged in an embarrassing back and forth publicly on Twitter, where the Winklevosses have attempted to frame themselves as victims of a scam, rather than bad actors acting badly. If they were remotely competent, they could have yanked their customers' funds, the ones loaned to Genesis from the Gemini Earn program when it was revealed that Genesis loaned $2.4 billion

to Three Arrow's Capital in July of 2022. Call it what you want, prudence, diligence, or just risk management, but it would have been the sensible thing to do. Unless, of course, they didn't believe they'd be able to get the money out. On October 19, 23, New York Attorney General Leticia James filed a massive fraud suit against Gemini, Genesis Global Capital and Digital Currency Group, alleging a conspiracy to mislead customers and cover up over a billion dollars of losses. The Attorney General's office found that the twin brothers named Cameron and Tyler Winklevoss had misled investors about the risks

associated with Genesis, and that Genesis not only failed to disclose its losses, but took steps to actively hide them from their clients and the public. The New York Attorney General's suit is damning and shows that Gemini was well aware of the rotten condition of Genesis from the launch of the program in 2021. With Gemini, and I quote the Attorney General's suit here, their internal risk analysis showing that Genesis Capital's loan book was under collateralized, which means that they did not have enough money to give back the money that they owed to the money. their customers. And that only a year into the program, Gemini revised its estimate of Genesis

Capital's credit rating, which is the way in which you measure whether a creditor or someone who is borrowing or loaning money, whether they're worthy of doing so, they revised its estimate of their credit rating from an investment grade of BBB to a non-investment or junk grade of CCC. Don't need to get too technical here, just know that's pretty bad. Genesis also routinely reported to Gemini from May 22 through November 22 that he had failed its own internal loan book risk assessments, to the point that in July 2022, a Gemini board member compared Genesis Capital to Lehman Brothers prior to the financial collapse of 2007 and 2008. At this point, you're probably thinking, so all the money's gone. And you're right. Gemini and the Winklevosses decided they would

terminate the Earned Program on September 2nd, 2022. but only decided to inform Genesis that it would do so on October 13th, 2022. It continued to send customer funds to Genesis throughout this period until an indeterminate time, with all of this information coming from the Attorney General's suit. And they failed to let customers know that the program was fully terminated until January 2023, though I should add that they froze withdrawals in November 2022. All of these dates are very confusing, but the important facts to know is that Gem and I knew from 2021 that they were sending customer funds into an unreliable, unstable,

under-collateralized lender for years. And indeed, even when they froze their own program, when they decided that the party had to stop in September 2022, they were still taking customer funds and putting it in Genesis' hands. They didn't freeze the withdrawal process, the way in which customers have withdrawn their funds until November 22. 22. So that's months of throwing customer money into the toilet and aggressively flushing it, like you're trying to get rid of a basketball. They knew. Cameron and Tyler Winklevoss knew. They knew what they were doing. They knew they were losing customers' money, and they didn't care. Two American billionaires put a billion dollars of customer funds into deeply questionable lenders' hands,

then proceeded to obfuscate the risks involved. They claimed that Genesis had appropriate risk ratios and healthy financial condition, as recently as November 14, 2022, a full month after it had formally terminated their agreement with Genesis, who was the company that they were lending this to. This wasn't a casual fling with a risky asset class. It was a near billion-dollar swindle of, and I quote Cameron Winklevoss, in his abominable letter to Barry Silbert, a swindle of a single mother who lent her son's education money to them, a father who lent his son's bar mitz for money to Gemini earn,

a husband and a wife who lent their life savings, a schoolteacher who lent his children's college funds. Cameron and Tyler Winklevoss, as well as Barry Silbert, who runs Digital Currency Group and, by proxy Genesis, have defrauded investors at a similar scale to Sam Bankman Freed, as I mentioned, the disgraced and now incarcerated CEO of FTX. They convinced customers that they were putting money into an interest-generating account, tricking them into believing that this was a stable, risk-managed investment, one that was continually liquid, and they indeed advertised that you could withdraw your assets instantly,

as opposed to the reality that Cameron and Tyler Winklevoss knowingly funneled customer funds into an unstable, undercollateralized lender. They intentionally and repeatedly misled customers, claiming to an earn investor on June 27, 2022 that they periodically would conduct an analysis of their partner's cash flow, balance sheet, and financial statements to ensure that appropriate risk ratios and healthy financial condition of their partners happened, and that they said their partners were vetted through a risk management process, heavily implying that said process would protect their customers. And on October 20, 22, less than a month before the Winklevoss is froze to withdrawals

from Gemini Earn, leaving their customers unable to access their funds or their interest. Digital Currency Group's CEO, Barry Silbert, also the owners of Genesis, met with Cameron Winklevoss and told him that Gemini was Genesis Capital's largest and most important source of capital and that they couldn't withdraw Gemini earned customers funds without bankrupting the firm. Cameron and Tyler Winklevoss not only deceived customers, but turned their assets into a load-bearing part of Genesis' balance sheet so that they could funnel them into billions of dollars of loans, which would then go into places like Three Arrows Capital and FDX. And the Winklevosses have spent the best part of a year playing the victim with pathetic open

letters that they post on Twitter to Barry Silbert, demanding the returns of funds that they knew were gone, claiming that Silbert hid in his ivory tower and he should take responsibility and do the right thing, as Cameron and his brother continued to mislead the world about what actually happened. While I'd never refer to the Winklevoss as victims, one cannot ignore how thoroughly fraudulent Barry Silbert's empire had become. On January 24, 2022, Genesis Capital loaned $100 million to DCG, the company that owned it, due on July 24, 2022, only for Digital Currency Group to tell them that they, and I quote, the suit, literally did not have the money.

Barry Silbert's solution was to, and I quote, repaper, the loan, delaying its due date by 10 months to May 2023. And you'll be surprised to hear that they never actually paid it back, along with several other loans that were either unpaid or paid back in shares of another part of digital currency group called Grayscale Bitcoin Trust, another enterprise involved in crypto. According to Sam Bankman-Freed's testimony during his own criminal fraud and conspiracy trial, Barry Silbert begged him for help, which he declined to provide, despite Genesis Capital having loaned FDX billions of dollars in the past.

which trustees agreed to settle for a puzzling $175 million. And just to be clear, the bankruptcy trustee just was just like, I'll take $175 million, I don't need the billion back. And one can really see where they misled Gemini and the Winklevoss brothers. The $1.1 billion promissory note from Digital Currency Group to Genesis, the one that was completely fake and was literally just words on paper, was marked in Genesis' balance sheet, which Gemini was occasionally shown, as $1.1 billion in receivables from related parties, with no designation of what it was or how it was amortized.

In plain English, that just means, to any financial analysis, that would appear as just money in the bank. We are receiving cash from someone, $1.1 billion actually, and that's good. That would make you a little bit calmer. However, one cannot ignore the fact that Gemini knew that something was up. In a March 5th, 2021 email to an earn investor, Gemini claimed that Genesis was, and I quote, only lending assets deposited into earn to institutional borrowers in an over-collateralized way. Over-collateralization, meaning that they were loaning more money than they were borrowing. How does that work?

It doesn't. Gemini never sought to correct a Coin Desk article from February 2021 that claimed, and I quote, that the Genesis loan, are over collateralized. The loans in question being the ones where Gemini earned funds, the funds that people put into Gemini earned to earn interest, were going. It's all just a big pile of dog shit. Another podcast from some SNL late night comedy guide, not quite. Unhumor me with Robert Smygel and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman help make you funnier. This week, my guest, SNL's Mikey Day and headwriter, Streeter

Seidel, help an a cappella band with their between songs banter. There's the worst singer in the group. The worst? Yeah. Me. Is there anything to the idea that because you're from Harvard, uh,

you only got in because your parents made a huge donation. The group. The yard birds, right? That's the name. The Harvard yard, but they're open. Do you have a name suggestion? We're open.

Since you guys are middle aged. Uh, one erection. Listen to Humor Me with Robert Smigel and Friends on the IHeart Radio app, Apple Podcasts, or wherever you get your podcast. Humor me. I need some jokes to make me seem funny. Run a business and not thinking about podcasting, think again. More Americans listen to podcasts than ads supported streaming music from Spotify and Pandora. And as the number one podcaster, IHearts twice as large as the next two combined.

So whatever your customers listen to, they'll hear your message. Plus only IHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business. Think IHeart. Streaming, radio, and podcasting. Let us show you at iHeartadvertising.com. That's iHeartadvertising.com. Hey, I'm Joe Rodano.

You might know me as that loud guy who yells out, help on the internet. Help! Somebody! Please! But there's so much more to me than me. I'm an actor. I'm a comedian.

And recently, I've become quite the helper myself. And on my new podcast, Hope from a Hypocrite, I'll be changing lives, helping people in need with my sage advice and thoughtful solutions. Sike, I'm a comedian. I'm not qualified to give good advice. Join me and my comedian friends as we riff, rant, recommend some of the most legally dubious advice known to man. If I'm calling you, even if you're on your phone, let it ring twice.

One ring is too scary. Oh, cream of chicken suit. Hey, cream. Cream of chicken soup. This is Help from a Hypocrite, the worst advice from the dumbest people you know. Listen to Help from Hypocrite as part of the Mike Coutura Podcast Network available on the IHartRadio app, Apple Podcasts, or wherever you get your podcasts. In May 2021, Gemini's risk management team determined that Genesis Capital was, and I quote, highly leveraged with an over 95% debt-to-asset ratio, meaning that most of their money was in debt rather than things they actually had,

and that Genesis has low liquidity and that the business is just able to cover its short-term obligations. Think of it like living paycheck to paycheck to the tune of billions. By August 2021, Gemini Earn had placed $3 billion of customer assets in Genesis' hands. And this whole situation enrages me. This is one of the largest and most gratuitous acts of negligence in the history of finance, a craven and deliberate swindle that flowed through every vein of the organization. Gemini intentionally and repeatedly misled customers into investing in an under-collateralized and risky lender by dressing their fraud in the trappings of conventional retail banking.

Gemini was well aware and continually reminded of how unsteadily, and disorganized Genesis was, and how risky its customers' assets were held. And yet it continued to hype the scheme in the hopes that nothing would ever change. They put billions of dollars into an entity that from the very beginning, they knew was rotten. They knew could barely cover their bills. They could have predicted this, and indeed, they tried to. They just wanted to keep the party going.

Cameron and Tyler Winklevoss are villains. And while they didn't outright steal customer funds, they intentionally and willfully misled customers into investing in Genesis Capital, an unstable and recklessly managed lender. They were fully aware of these dangers. Yet they chose to launch a program that their own risk management team believed was riskier than other partners that Gemini had considered loaning that money to, saying in February 2022 that Genesis' finances were weaker with a higher. leverage ratio and low liquidity ratio, meaning that they were more risky and they had less

money to give back to customers when they need it. And indeed, they worried that a market downturn would mean that a 50 to 60 percent default rate for Genesis was an appropriate assumption, meaning that more than half of their loans would go under. And that a market downturn would mean that a 50 to 60 percent default rate for Genesis' loans was an appropriate assumption, meaning that more than half of their loans would default in the event that there was a change in the cryptocurrency market. The risk management team repeated this language several times, and it took until May 2022 for Cameron Winklevust to personally ask for a one-pageer on the risk profile of Gemini

Earn and Genesis, the company that they had lent at that time of a billion dollars to. And indeed, whether Earn adequately compensated Gemini for the risk. In plain English, they were saying, you know what, is it really worth it for us to risk all of this customer money? And when they said worth it, they mean, is it making us enough money for the pain in the ars we're creating? I hope it wasn't. I hope they burn for this one.

Having read the entire New York Attorney General's suit, I cannot find a single instance of concern for the hundreds of thousands of people. The Gemini and Cameron and Tyler Winkle voss failed, despite Gemini's play. to uphold, and I quote, the highest level of fiduciary obligations. The Winklefosses represent their position as the trusted stewards at the digital currency industry, claiming to live by a policy of asking for permission rather than forgiveness, as they brazenly funneled billions of dollars of customer funds into a lender that they clearly didn't trust. They ignored the signs, they ignored the risk management profiles,

they ignored the worries. And they continually rambled. about being licensed and regulated by the New York Department of Financial Services, which means absolutely nothing, as Gemini Earned deposits were being loaned to Genesis, per the terms of Gemini Earn's agreement, which in turn took them out of the regulation of the NYDFS. The Winklevosses, the so-called self-regulators of crypto,

according to Paul Vineyard of the Wall Street Journal, built a reputation as the trustworthy party in a lawless industry, only to use it as a means of making, $22 million in agent fees and $10 million in commission from risking billions of dollars of customer funds. And in this case, Gemini earned customers are likely going to lose 40 to 50% of their holdings if they get anything back at all. A good comparison point here is that creditors related to Voyager, which was another crypto Ponzi scheme, only got back 35% of their holdings. Now I have to get into some more annoying

financial stuff. You'll forgive me. I just want you to know how loathsome these wet river giants are. These boat boys have really bugged this up. In October 2023, the Winklevox has filed something called an adversary proceeding in court against Genesis, in bankruptcy court to be specific, seeking to recover $1.6 billion in value for the benefit of earned users in an attempt to paper over their financial mismanagement. On August 15th, 2022, Gemini accepted over 30.9 million shares of gray-scale Bitcoin trust, a stock tied to the price of Bitcoin with a minimum investment of $50,000 in the ticker of GBT.

They accepted this as collateral for customer funds invested in Gemini Earned, valued at the time at around 15 bucks apiece, somehow taking on what they call an initial collateral stake over a year after the program started. Just to be clear, no collateral when they loaned the money out. It was worth around $463 million at the time, and the Winklevosses, for some reason, decided to foreclose upon it on November 16, 2022, selling it when its price was around $9 a share. This left them with $284 million, a little bit over that, or roughly 64.1% of its original value. They didn't have to sell it, and indeed, one might argue they legally shouldn't have, because it was collateral from my own. alone. In the same way that the bank can't immediately foreclose in your home when you're in it

and you've missed a few payments, they probably weren't meant to do so. But I continue. Now the Winklevosses are claiming that they should be considered owed the difference between $284 million and the amount owed to earns creditors. Genesis argues, I should say, the bankruptcy trustee of Genesis, which has no interest in anything to do what Genesis is doing other than getting money back for the creditors, most of which are institutional customers come last. That trustee is arguing that it actually didn't give Gemini $284 million in credit. They gave them 30,905,782 shares of GPDC, and that the collateral should be valued at the price of GBT today, which would value the stake that they had given them at 800 million.

This is confusing, but what you need to realize is, Gemini-earned customers have. lost somewhere between $800 million and a billion dollars. Had the Winklevosses not sold their shares, they would have got a lot more back. In essence, the Winklevosses rushed to sell these shares who are effectively no reason, potentially flaunting very basic foreclosure rules, and Genesis's argument is that they shouldn't have to make up the difference for their massive fuck-up. Interestingly, Gemini was also meant to receive another 31 million shares of GPDC on November 10, 2022, and Genesis just didn't send it. And guess what? The bankruptcy court isn't going to help

with that. Let's be clear. Both of these parties are scum, and in a just society, they'd rot in the depths of the worst jails. Under the terms of Genesis's reorganization plan under bankruptcy, Gemini earn customers, those people, regular people, the people's college funds, the bar mitzvah funds, the single mothers who had lost their money, they'd be considered class four unsecured creditors, getting paid out behind Genesis' institutional creditors, secured creditors, and priority claims, which is why Genesis had to pay $175 million to FDX's bankruptcy, a single mother's waited to retrieve their son's college funds. Yet there may be hope that Gemini earned customers will be made whole. Mere hours after the original broadcast of this podcast, the New York

State Department of Financial Services announced that Gemini had committed to return at least $1.1 billion to earns customers, though only after the resolution of Genesis Global Capital's bankruptcy. Assuming that the bankruptcy courts approve the settlement, Gemini Earned Customers Can, according to Gemini, expect to receive approximately 97% of their assets in kind within two months of February 28, 2024, and the rest about 10 months after that. Unlike the proposed FTCS settlement, customers will also receive the actual crypto they committed. In the case of FTCs, they're getting the dollar equivalent on the day that FTCS went bankrupt, which means they're getting much less than they'd make if they were selling their crypto today.

This means that these customers might actually make money, because on the day that Gemini earned shut down, Bitcoin was somewhere between $11,000 and $15,000. This means that they're actually going to make a profit somehow, which is pretty good. It's rare to find good news here. And don't get too excited yet, though. All of this is dependent on the tedious pace of bankruptcy courts, that in this case, I've kind of considered Gemini Earn's customers' second-class citizens. This landmark settlement is being spun by the Winklevoss brothers as, and I quote,

a successful resolution of Gemini Earn that was reached, and I quote again, with Genesis and other creditors, one in which these identical River Twins are considered, and I can't believe they're willing to say this, responsible stewards of the crypto ecosystem. This couldn't be further from the truth. Superintendent Adrian Harris of New York State's Department of Financial Services said in a statement the Gemini had failed to conduct due diligence on an unregulated third party. Later accused of massive fraud, harming earned customers who were suddenly unable to access their assets. The NYDFS's investigation revealed, and I quote,

the Gemini engaged in unsafe and unsound practices that ultimately threatened the financial health of the company. And they collected hundreds of millions of dollars in fees from Gemini. customers that could have gone to Gemini, substantially weakening Gemini's financial condition. The Winklevosses are not responsible stewards. They're towering con artists that got core, and they were forced to pay up only because they ran a foul of one of the few responsible regulators left in America. While I'm hopeful that earned customers are made whole, I also fear that the bankruptcy courts may drag their feet. And even if they don't, kind of just want more here.

The Winklevosses aren't even the ones paying the fines. Their company is. Gemini will pay the $37 million fine from the NYDFS, and I think they're going to pay the $1.1 billion in cryptocurrency too. What's weird is I can find no evidence about where that money is coming from. I'm also worried that Genesis, as they have multiple times, or kind of stonewall this deal, they want to get out of this.

They recently set up with the SEC for $21 million, So they have a reason to do well with the U.S. government, but I fear for this. All of this is contingent on bankruptcy courts, don't really care. Regardless of this landmark settlement, it is great. It's great that the regulators got the customers' money back. But my blood is still boiling. Cameron and Tyler Winklevoss will continue to run Gemini, which is a multi-billion-dollar financial services company.

despite the fact that it's very clear that they really didn't do any due diligence, and that due diligence which they did, they completely ignored. They knew that this was a bad deal. They sent tens, hundreds, over a billion dollars to a company that they knew as early as 2021 was bordering on insolvent. Yet, they're still allowed to walk around both as free men and stewards of the financial industry. It's kind of taken the piss. And even though the New York Attorney General's suit is still out there, it's not over yet,

and they're still seeking $3 billion in restitution, they're doing so from Gemini and Digital Currency Group, the Winklevosses are still left unscathed. These are craven fraudsters that continued again and again to operate without oversight or restraint, and now they're going to profit handsomely off of an industry built on the back of manipulating and conning people. And despite how good this settlement is,

These guys are still billionaire boatboys. They're unscathed. They rob their own company. They rob their customers. They laughed in our faces. And at this time in society, when tens of thousands of people are being laid off, when people can't get houses, when the regular person that cannot seek wealth, people that go out and fuck over customers again and again and again in broad daylight lying to us, lying to you

and me in a way that is so craven, nothing happens to them. Oh God, they got slightly embarrassed. They can't be kicked out of Gemini. They own the bloody thing. The crypto industry isn't attacking them, despite the fact that two of your so-called stewards are fucking con artists. Anyone who's listening to this, who's a big fan of crypto, who believes that these guys are good people, or indeed that really there are any good people in this industry, should read the New York Attorney general suit. They should read everything that the Winklevosses did. They should listen to this podcast again, perhaps, and recount the many ways, the manifold ways in which these two giant freaks shat all over their customers, lied to them, lied to regulators, lied to their own

company, and sat there with their thumbs up their asses, not digging into their own personal piggybacks, making the dumbest calls again and again, and nothing has happened to them. I pray the Latisha James and the New York Attorney General's Office finds a way to exile

these two bastards from this goddamn financial services industry. But I'm going to be honest, I'm not holding my breath. Thank you for listening

to Better Offline. It's a weekly tech podcast. You can find it on IHeartRadios app or anywhere else you find podcasts. The editor and composer of the Better Offline theme song is Mattosowski.

You can check out more of his music and audio projects at Matosowski.com. M-A-T-T-O-S-K-I-com. If you want to get in touch with me, email me at E-Z at betteroffline.com or visit me at Ed Zittron on Twitter or Zitron.com. Check out my newsletter and more of my work on betteroffline.com. Thank you for listening.

Better Offline is a production of Coolzone Media. For more from Coolzone Media, visit our website, coolzonemedia.com. Or check us out on the I-HeartRadio app, Apple Podcasts, or wherever you at your podcasts. Another podcast from some SNL, late-night comedy guy, not quite. Unhumor me with Robert Smygel and Friends. Me and hilarious guests from Bob Odenkirk to David Letterman help make you funnier. This week, my guest, SNL's Mikey Day and head writer, Streeter Seidel, help an

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