It’s been alleged that paperwork filed by Digital Currency Group (DCG) and its subsidiaries reveals concerning details about the personal finances of founder Barry Silbert.
According to financial data analyst DataFinnovation, the documents reveal a little-known asset management portfolio company with only one significant client — rumored to be Silbert. Documents also apparently disclose a curious sum that Gemini Earn received from selling collateral from loans made to Genesis, a DCG portfolio company.
In short, it’s possible that a portfolio company of Silbert’s DCG — whose sole high-net-worth client was likely Silbert himself — managed billions of dollars of personal fortune, lent Genesis over $1 billion, and preferentially got over $1 billion back amid the collapse of Three Arrows Capital (3AC).
Protos hasn’t been able to independently confirm that the high-net-worth client is, in fact, Barry Silbert. Nor has Protos corroborated the other allegations by DataFinnovation — in particular, the allegation that Silbert preferentially withdrew personal funds ahead of other DCG stakeholders amid the collapse of 3AC.
We have contacted DCG to attempt to verify these claims and will update when we receive a response.
Barry Silbert and his personal empire within DCG
Genesis Trading filed for Chapter 11 bankruptcy in January 2023. Bankruptcy filings revealed $2.6 billion in debt. Although outstanding loans had declined from $2.8 billion in its 2022 third-quarter filing, it was still struggling after the 3AC bankruptcy and the FTX meltdown.
DCG did its best to rescue its portfolio company Genesis after the 3AC bankruptcy. The $1.1 billion promissory note representing DCG’s attempt to absorb Genesis’ debt became widely publicized. It also made $575 million in separate loans to Genesis.
Genesis Trading also owed a lot of money to Gemini Earn, leading to some back-and-forth between Silbert and Gemini’s Winklevoss billionaire twins, Tyler and Cameron. The often-heated dispute included the Winklevoss twins demanding that DCG send $630 million to the Genesis bankruptcy estate to avoid default, and repeated threats to sue.
Gemini Earn also liquidated $280 million in collateral, which didn’t come close to covering the $750-900 million that Genesis Trading owed Gemini Earn.
The bankruptcy filings include a list titled Digital Currency and USD Payables. This list showed more than 250 million Gemini Dollars (GUSD) owed to an unnamed creditor. Obviously, not many entities besides Gemini use GUSD.
What is HQ Digital
One DCG subsidiary named HQ Digital has flown under the radar with only one ‘high-net-worth individual as a client. It’s managed more than $3.6 billion in assets for its client and $8 million for three smaller clients. The filing indicates Barry Silbert and DCG have ownership stakes in HQ Digital.
Founded in 2021, HQ Digital shares an address with DCG headquarters. It borrowed $1 billion from Genesis Global in early 2022 and paid it back when DCG issued the promissory note to rescue Genesis Trading. Filings indicate it has an HQ Founders Liquidity Fund, adding more circumstantial evidence that Barry Silbert might be its sole ‘high-net-worth individual’ client. It also previously used the now-defunct Silicon Valley Bank (SVB) to hold assets.
As more details emerge concerning bankruptcy and regulatory filings, analysts like DataFinnovation have accused Digital Currency Group of attempting to muddy the waters around HQ Digital’s curious management of Barry Silbert’s personal assets and DCG portfolio companies’ assets.
Allegations of misbehavior by the DCG executive team
DataFinnovation has also floated the possible explanation that members of DCG’s senior management — Silbert included — might have personally funded bad deals and were attempting to cover up their activities. In 2016, the SEC settled charges that the Grayscale Bitcoin Trust (GBTC) and Genesis — which had served as a GBTC broker — violated its Regulation M. Since then, the GBTC premium has fallen as low as 30%.
Unlike many analysts, DataFinnovation looked closely at regulatory filings and dug up some interesting details regarding a previously unreported entity, HQ Digital. Gemini Earn sold off collateral from loans, possibly netting barely one-third of the money it had loaned to Genesis Trading.
Assets managed by HQ Digital for the benefit of Barry Silbert personally might have close ties to the tangled web coming to light with the DCG/Gemini/Genesis bankruptcy entanglement.