Transcript Ep. 565: Two Genesis Creditors Describe Their Frustrations With the Bankrupt Crypto Lender

In a rare interview, two Genesis creditors discuss their dealings with the lender and DCG, including the sales pitch that got them to give Genesis new loans after the 3AC debacle.

BJ:

They said, in fact, after the 3AC episode, not only have we been recapitalized, but we are massively de-risking our loan book. He said, we're calling back all sorts of... We're re-analyzing all of our borrowers, the people who borrow the Bitcoin that we deposit, and we are changing the risk levels and we are de-risking. We are now much more conservative in our risk levels. So if anything, depositing now is a lot less risky than it would have been a year ago because we're calling back a lot of the risky loans and you are now depositing into a loan book that is a lot less risky than it was. In fact, it's safer now because of what happened with the 3AC for you to deposit now. And it kind of made sense if you believe them. If you believe people are telling you the truth, it kind of made sense what he said that yes, they would be de-risking the loan book. And so in fact, you are now taking less risk than you did before.

Laura Shin:

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago and as the senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the November 4th, 2023 episode of Unchained.

Phemex, a prominent crypto exchange, is at the forefront of revolutionizing centralized exchanges. Unleash your unique Web 3.0 identity. Discover more at phemex.com.

VaultCraft by Popcorn is your no-code DeFi toolkit for building automated, non-custodial yield strategies. Learn more on vaultcraft.io about how you can supercharge your crypto portfolio.

Arbitrum's leading Layer 2 scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit arbitrum.io today.

With the Crypto.com app, you can buy, trade and spend crypto in one place. Download and get $25 with the code Laura. Link in the description.

Today's topic is the alleged fraud by DCG and Genesis. Here to discuss are two Genesis creditors, BJ and Branden. Welcome BJ and Branden.

BJ:

Hi Laura.

Branden:

Hi Laura, thanks for having us.

Laura Shin:

Heads up, everyone. For security reasons, these two will be going by pseudonyms, but I have verified that they are Genesis creditors.

Heads up, everyone. I reached out to DCG and Derar Islim of Genesis for this show. I've included responses from DCG throughout. However, Islim did not respond to multiple requests for comment.

New York Attorney General Letitia James has sued Gemini, three Genesis entities, Digital Currency Group or DCG, its parent company, and Michael Moro and Barry Silbert over alleged fraud and misrepresentations to Gemini Earn customers who had enrolled in a program to lend out their crypto assets to earn interest. In the lawsuit, James alleges that Gemini's own team had deemed investing with Genesis extremely risky, but did not choose another lender or close the program down. She also alleges that DCG and Genesis perpetrated fraud on Gemini by sending them fraudulent financial statements. While her lawsuit focuses on the Gemini Earn customers, who she says are victims, there are also customers of Genesis who have not been able to withdraw their money.

I asked Sam Enzer, a former prosecutor in the Southern District of New York, why James would have only named Gemini Earn customers as victims in her lawsuit and not also Genesis customers. And he said that as long as she had the evidence to show that alleged fraud was perpetrated on Gemini's customers, she wouldn't need to show that there was also fraud on Genesis's customers. In a previous episode, he had said that SDNY prosecutors had a slogan, thin to win, that meant they should narrow in on what they are sure they can prove. Referencing that slogan, he wrote to me in an email, "Along the lines of thin to win, if you have already made strong case regarding the Gemini Earn customers, why bother expanding to cover other issues and take on the burden of proving those other issues is sort of the way a prosecutor or New York Attorney General would think about it." So I did reach out to James's office to see if I get an explanation, which I will include by the time this podcast is released, if I receive one. Regardless, BJ and Branden, the Genesis customers have decided to tell their story. So let's start with introductions from them. BJ, why don't we start with you? How did you become a Genesis customer and what is your role in the bankruptcy?

BJ: