Chief of Digital Currency Group defends record amid call for sacking

The chief executive of crypto conglomerate Digital Currency Group has defended his company’s decisions and intragroup borrowings amid calls for him to be sacked, in a growing dispute over debts stemming from last year’s FTX crypto shock.

Barry Silbert, head of DCG, wrote to shareholders on Tuesday, defending his decisions and explaining several loans. His letter came several hours after Cameron Winklevoss called for the group’s board to oust him as chief executive.

In an open letter published on Tuesday, Winklevoss, who runs crypto exchange Gemini with his twin brother Tyler, reiterated his call for Silbert to pay back debts including $900mn in Gemini client funds that are stuck in one of DCG’s units. Cameron Winklevoss had previously given Silbert a January 8 deadline to commit to solving the matter.

The cash demands underline how last year’s collapse of crypto exchange FTX continues to hurt the industry’s close-knit web of prominent firms and personalities in this self-styled decentralised market.

The conglomerate’s troubles stem from its subsidiary Genesis, a crypto broker, which allowed customers to lend out their coins for high yields. After the collapse of FTX in November, Genesis suspended customer withdrawals, including some funds placed through Gemini’s “earn” programme, and hired Moelis investment bankers to help explore its options.

DCG’s creditors include customers of Gemini, Dutch exchange Bitvavo and crypto savings firm Donut.

In the public letter published on Tuesday, Cameron Winklevoss called on the group’s board to sack Silbert immediately. The twins do not own a stake in DCG, limiting their capacity to force Silbert’s hand.

“This is another desperate and unconstructive publicity stunt from Cameron Winklevoss to deflect blame from himself and Gemini, who are solely responsible for operating Gemini ‘earn’ and marketing the programme to its customers,” DCG said in response to the letter, adding that it was “preserving all legal remedies in response to these malicious, false and defamatory attacks”.

Later on Tuesday, Silbert wrote to shareholders, saying “it has been challenging to have my integrity and good intentions questioned”. He added that the crypto industry had last year “been all but destroyed by a wave of unprecedented fraud and criminal behaviour” and that he had an “unrelenting focus on doing things the right way.”

Connecticut-based DCG’s web of intra company loans, and investments, previously revealed by the Financial Times, has complicated the picture for creditors and raised questions.

Silbert founded the group in 2015 and is one of the industry’s largest and earliest investors in crypto tokens and companies. Investors including SoftBank and Ribbit Capital valued it at $10bn last year.

The core issue is a $1.1bn promissory note that DCG issued directly to Genesis when it assumed the broker’s liabilities following the collapse of crypto hedge fund Three Arrows Capital last summer. It matures, delivering the cash to Genesis, in 2032.

Cameron Winklevoss wrote on Tuesday that DCG had not “given Genesis so much as a penny of actual funding”, saying the promissory note “did nothing to improve Genesis’s immediate liquidity position or make its balance sheet solvent”.

Silbert said assuming the liabilities as a promissory note was recommended by DCG’s advisers, and they did so in order to protect Genesis’s trading and lending desks. He added that the note is not callable.

The former banker described several borrowings between DCG’s subsidiaries, some of which were used to invest in another of its companies.

He wrote that DCG borrowed $500mn from Genesis between January and May 2022 at interest rates of 10-12 per cent, as well as borrowing bitcoin at a weighted average interest rate of 3.85 per cent over the same period.

DCG currently has a 4,550 bitcoin loan balance outstanding. He said the tokens were used to hedge long positions on a trust tracking the price of bitcoin, which is run by another of DCG’s subsidiaries, asset manager Grayscale.

He added that DCG further borrowed about $1.5mn worth of the bitcoin cash token BCH in 2020, and is currently paying 9 per cent interest to Genesis.

DCG has been attempting to raise money and cut costs to repay creditors. Last week, Genesis laid off 30 per cent of its staff, and Silbert said the group had also shut HQ, its wealth management subsidiary.

DCG’s board comprises several high-profile investors including Lawrence Lenihan, co-founder of venture capital company FirstMark Capital.

Glenn Hutchins, co-founder of private equity group Silver Lake, resigned from the board in November, according to people familiar with the matter. He declined to comment. Former US Treasury secretary Larry Summers was also a DCG adviser on macroeconomic matters — a role from which he has also stepped down in recent days.

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