House collapse? Grayscale boss is in a lawsuit, will he follow in the footsteps of SBF?

Source: Intelligencer; Compiled by: BitpushNews Yanan

Eric Asquith revealed to me: "Until 2022 On November 16th, I learned the true identity of Barry Silbert and all the information related to him." On that day, he was convinced that his family's hard-earned 105 Thousands of dollars in savings have been wiped out.

Asquith has always regarded itself as a stable cryptocurrency investor. He deliberately avoided Bitcoin or other popular altcoins, and instead chose to gradually convert his funds at the beginning of the year into GUSD, a digital currency that he believed to be as reliable as cash. GUSD is issued by the well-known cryptocurrency exchange Gemini. Each token is backed by US dollars and assets, which also makes Asquith have special trust in this exchange. He was also deeply moved by Gemini's advertising slogans "Crypto Without Chaos" and "The Revolution Needs Rules", which coincided with his consistent investment philosophy. For the safety of funds, Asquith did not conduct transactions rashly, but chose Gemini's Earn account to store this huge sum of money. This is a project similar to a savings account, with an annual interest rate of up to 5.5%, far exceeding bank interest rates during the same period. Like Asquith, there are many investors who choose the Earn project, including grandmothers who have invested their life savings in it, and people who are saving money to prepare for surgery.

However, the cryptocurrency world is full of layers of packaging tricks - wallets are identified by long strings of codes rather than user names; companies can Appear silently and disappear silently. What Asquith didn't fully realize was that his funds were no longer under Gemini's control. To some extent, it appears that the money was taken over by Genesis, a crypto company run by Barry Silbert, but the truth is far more complicated than that. Some hedge funds on the verge of collapse, such as Three Arrows Capital and Sam Bankman-Fried's personal fund Alameda Research, They are all secretly borrowing money from Silbert's company. In this way, the funds of Asquith and thousands of others were used by SBF and others to bet on the tokens with the strongest growth and volatility. The Earn account acts like a giant funnel, funneling funds from the savers who are most cautious about cryptocurrencies to the most adventurous speculators in the market. The end result is self-evident. Silbert's Genesis company, like many other players in the industry, eventually went bankrupt. On January 18, 2023, a special committee independent of the control of the company's owners officially pushed Genesis into bankruptcy proceedings.

Asquith knows that his funds have been wiped out by the short-sighted decisions of crypto tycoons such as the Winklevoss brothers, Silbert and SBF, and this is nothing but the collapse of the crypto empire. the tip of the iceberg. In the world of cryptocurrency, such tricks are commonplace. Throughout 2023, negotiations on the Earn project user compensation plan broke down repeatedly, with Silbert's Digital Currency Group and creditors passing the buck and blaming each other. However, the situation took a dramatic turn in November. Bankman-Fried was found guilty of seven counts of fraud and conspiracy, which undoubtedly dropped a bombshell on the entire cryptocurrency market. At the same time, the market is gradually recovering, and the price of Bitcoin is about to double again, hitting new highs repeatedly, showing its tenacious vitality.

Bankruptcy cases have always been difficult and complex legal matters, and the compensation creditors can recover is often only a small part of the amount owed. However, in February, the victims, customers of Silbert's bankrupt cryptocurrency lending platform, reached an exciting agreement with the Winklevoss brothers and regulators to repay all user losses in full. The bull run in the cryptocurrency market in 2024 makes repayment in full more feasible. This means that customers of the Earn project can not only get back the principal they originally invested, but also obtain higher returns based on the current market price. For example, a user who originally invested 1 Bitcoin will not only receive $20,000 worth of compensation when Genesis went bankrupt, but will get back 1 complete Bitcoin - you know, the same as when the incident occurred. In comparison, the market price of Bitcoin has more than tripled. During the hearing announcing the new solution, Project Earn victims cheered in Telegram chat rooms. "Oh my gosh, I can finally buy a house! It's so great!" one of them said excitedly. "I'm moved to tears," another lamented.

The unexpected reversal of this incident makes it possible to become a landmark case in the field of cryptocurrency. Unlike FTX and other companies that only return a small amount of dollars in bankruptcy, the compensation method in this case is particularly eye-catching.

However, Silbert's intervention made things complicated. Victims of Project Earn, who originally knew nothing about him, soon discovered that his path to success was achieved by delving into the loopholes of the bankruptcy system. The billionaire has been using a controversial interpretation of bankruptcy law since February to block Asquith and other victims from receiving higher payouts based on current market prices, apparently preferring to keep the money for himself. In response, a spokesperson for DCG firmly stated: "DCG cannot support any plan that deprives it of its corporate governance rights and violates U.S. bankruptcy laws." This case is not only about monetary compensation, but also poses a serious challenge to the future supervision and regulation of the cryptocurrency industry.

Victims nicknamed Silbert's move the "Barry deal," implying that if he succeeds, the $1 billion that should have been returned to the victims will be lost. Got it into his pocket. At the very least, Silbert may go to great lengths to significantly delay the return of Earn client funds.

Asquith has always held out hope that he can get his money back, but Silbert's role in the whole thing has left him confused. "Given Barry Silbert's expertise in bankruptcy, as well as his knowledge of the bankruptcy process and the benefits he ultimately gained, many speculated that he deliberately bankrupted Genesis," Asquith said. However, a spokesperson for DCG firmly denied: "Neither DCG, nor Barry Silbert, nor any of its employees participated in the decision-making of the bankruptcy application." So, is Silbert controlling the flow of funds to companies he controls, or is Silbert controlling the flow of funds to companies he controls? Was he, as he argued in court, a well-intentioned executive blinded by crooks in his industry? And these scammers are now either behind bars or in hiding.

Silbert grew up in Gaithersburg, Maryland, near Washington, DC. When he was about 10 years old, his father passed away from cardiac arrest caused by an aortic aneurysm. This family tragedy prompted him to take on the responsibility of supporting the family early. According to his mother, Silbert obtained qualification certificates as a trader and stockbroker while still in high school, and later entered the doors of well-known Wall Street investment banks Bear Stearn and Smith Barney.

However, it was his work experience after graduating from business school that truly gave Silbert a deep understanding of the bankruptcy system and its potentially huge profit margins. While working for Houlihan Lokey, a smaller investment bank, he handled the sale of fiber optic cables and pipes to bankrupt companies such as Enron and WorldCom. The two companies were at the center of the largest accounting scandals in the United States in the 1990s and early 2000s. Later, he admitted in Congress that it was that experience that ignited his passion and determination to found his own company, SecondMarket.

When a company enters bankruptcy, its assets often become the focus of competition among competing stakeholders, who often lent money to the company and demand repayment. of creditors. These assets tend to be much riskier than stocks or bonds, in part because bankruptcy proceedings can be protracted, taking years. In Silbert's eyes, his new company is like an "eBay" that provides trading opportunities for bankruptcy debt and other hard-to-sell stocks - although it cannot match the size and influence of the New York Stock Exchange, it provides the market with a A trading platform that is far more convenient than existing options.

Silbert's startup, located in a 400-square-foot office in downtown Manhattan, is small but dynamic. Although the number of employees is small and their responsibilities sometimes overlap, everyone feels a deep sense of belonging to the company. Adam Oliveri, one of Silbert's early hires, had just graduated from his undergraduate degree in economics. He recalled: "As a young man at that time, I was very passionate about my work. Sometimes I felt that the method was not right, and I would go directly to Barry to discuss it. He even stood on his desk and gave a speech about how to improve." A few years later, Silbert discovered a market with great potential: finding buyers for Facebook stock before it went public. Mark Zuckerberg's employees want to sell their valuable stock, and Silbert's company has a near monopoly on the trading market. This business not only attracted a lot of attention, but also brought him huge profits and even landed him on the cover of Bloomberg Markets magazine.

In 2015, Silbert successfully sold SecondMarket to Nasdaq, but he did not stop and set his sights on the emerging field of Bitcoin. As early as 2012, he began acquiring Bitcoin for the trust, providing investors with the opportunity to participate in this emerging market. In order to support Charlie Shrem, an early evangelist of Bitcoin, in establishing the BitInstant exchange, Silbert took the risk of competing with the Winklevoss brothers for funds, but ultimately failed. Shrem was later jailed for money laundering charges. According to journalist Nathanial Popper's description in the book "Digital Gold: The Rise and Fall of Bitcoin and Blockchain", Silbert even called JPMorgan Chase CEO Jamie Dimon and tried to convince him that Bitcoin was the currency of the future, but failed. Still, Shrem said in a podcast in March that Silbert’s efforts led to many venture capital firms truly recognizing Bitcoin’s potential as an investment and asset class.

The Bitcoin fund founded by Silbert was later renamed Grayscale Bitcoin Trust and quickly achieved great success in the market. At a time when few similar products were on the market, the trust allowed investors to trade on the open market under a ticker symbol, opening up their path to buying Bitcoin — especially for those who didn’t want to sign up for a cryptocurrency exchange. Although financial journalist Felix Salmon questioned whether it was a "not a good idea", the fund did bring huge profits. At that time, investors needed to pay DCG fees of 2% and 1.5% when buying and selling fund shares, which also brought considerable income to DCG.

Over time, the fund has grown in size. By the end of 2019, the value of its Bitcoin holdings had reached US$1.87 billion; and in the second year, its size increased nearly tenfold, reaching an astonishing US$17.7 billion. Soon after, that number doubled again.

Silbert’s wealth continues to flow in, and his funds seem to be flowing to all corners of the crypto space. Through DCG, he invested in the world-renowned exchange Coinbase, the hardware wallet manufacturer Ledger, and companies with a market value of tens of Billion dollar altcoin Ripple. In addition, he also acquired the news media CoinDesk and founded Genesis to get involved in the institutional lending business, borrowing from Wall Street's operating model. Genesis acts like a hedge fund, taking money from investors like Asquith (though not lending it directly) and then making risky trades. According to people familiar with the matter, Genesis was one of DCG's main sources of profit during the market boom.

Although Silbert is a prominent figure in the crypto space, he is not as prominent in the industry as Bankman-Fried was in 2020 due to his unique look and celebrity circle of friends. Focus. People are more familiar with the corporate network behind him than with him. In 2021, Genesis partnered with the Winklevoss brothers’ exchange to launch the Earn project, a move that “borrowed” approximately $1 billion in cryptocurrency for Silbert’s company.

However, although the project experienced explosive growth during the cryptocurrency bubble during the epidemic, it eventually became Silbert's biggest threat as a crypto industry boss. .

Silbert's company has faced a series of legal challenges since January last year. Creditors such as Asquith are actively fighting for their rights in New York's bankruptcy court, trying to recover their losses. On October 19, New York State Attorney General Letitia James filed a lawsuit accusing DCG, Genesis, Genesis’ CEO, Silbert, and the Winklevoss brothers’ exchange Gemini of allegedly defrauding customers. The accusation specifically states that in the spring of 2022, after the collapse of Genesis' client Three Arrows Capital, DCG issued a false $1.1 billion commitment note in order to cover up holes in its balance sheet.

The lawsuit details a complex fraud scheme: The Winklevoss brothers’ Gemini is accused of inducing investors to put money into riskier products, while Silbert’s DCG and its subsidiaries used these funds to conduct high-risk transactions. A former employee said: "Regardless of what Gemini did or did not do, Genesis' negligence in protecting customer assets and adhering to best practices was more serious." In addition, according to this person, the company's problems also include It failed to screen customers who were on the Treasury Department's blacklist, an allegation backed by a separate lawsuit filed in January by the New York Department of Financial Services.

Proceedings from the attorney general and regulators are ongoing, and DCG and Silbert have firmly denied any wrongdoing. DCG even claimed that its promissory notes were not fraudulent and expressed its intention to honor them. Both sides are working to have their respective charges dropped. Regardless of the state court's verdict, Silbert has taken his strongest stance yet against Project Earn clients—the victims who initially lent him money out of trust. Since February, he has been using a seemingly unusual argument. DCG argued that under bankruptcy law, many people who originally lent cryptocurrency to Genesis would not be compensated at current cryptocurrency market prices. This means that for victims who lent Bitcoin and many other coins at the time, the losses could be hundreds or even thousands of times greater.

Silbert's legal logic is based on the fact that bankruptcy law sets a specific date by which the dollar value of victims' claims is assessed. For Genesis, this date coincides with a market low. DCG attorney Jeffrey D. Saferstein told the judge at a hearing: “Dear Judge, I can assure you that if the market price of Bitcoin were $10,000 today, the victims’ arguments would be completely different. Last month, at a hearing announcing the $1.1 billion settlement, DCG's attorneys went even further to argue that the judge had no authority to approve the agreement, a move that angered victims. An anonymous creditor told me: "I have been in the cryptocurrency field for a long time, and I have always regarded Silbert as an idol before, but after all this, I really can't stand him anymore."

On March 18, Judge Sean H. Lane heard closing arguments in court. Lawyers representing creditors, Genesis and Gemini laid out their reasons for why Silbert's argument should be rejected. Although there are many technical details involved in the debate, the core focus is on the properties of Bitcoin as a special asset, like rare baseball cards. Genesis' lawyer Brian Rosen gave an example at the hearing: "Suppose a creditor owns a rare Honus Wagner star card, then he should be entitled to the entire complete star card, not a part of the card." Coincidentally, , Genesis now stands against Silbert and DCG, supporting the claims of the victims.

However, Jessica Liou of DCG's legal team dismissed the victims' arguments as a "Frankenstein theory" that lacks support from bankruptcy court rules (Translator's Note) : Frankenstein theory refers to a theory that is patchwork and nondescript)." She said: "I understand that this is a difficult decision for the court because of concerns about how it will affect the creditors in the Genesis case. But sometimes, the court does need to make difficult choices." Other DCG lawyers warned that if The judge ruled in favor of the victims, which could be appealed and "overturned", potentially further delaying payments by months.

Even if the judge ultimately sides with Silbert, he may still bear some liability because of the funds. . If he and DCG are unable to escape the attorney general's lawsuit, the state may seize the money as compensation - an outcome DCG and Silbert are trying to avoid. However, if Silbert ultimately prevails, he will be able to prevent the attorney general's office from collecting the funds on behalf of Project Earn clients, thereby keeping it under his control.

The verdict is expected to be announced in April. Since the settlement was announced, victims have braced themselves for a long battle because of Silbert's opposition. "A year ago, when the settlement agreement was proposed, everyone was ecstatic," Asquith said. "But now, I will only breathe a sigh of relief when the funds actually arrive."