Did Genesis Admit It Was Insolvent In July 2022?
The Gemini-DCG complaint includes the following table and passage:
Now make a spreadsheet from that table:
The “Collateral Rec.” column total is not the sum of the other 4 entries. The total does match, up to rounding, for the other columns and the other date given in the filing. Also note the second such table is in a different format. Is this their real internal report?
Now compare total assets vs liabilities to get equity using both totals:
If the total-from-parts is right they were insolvent on their own numbers as of then. The report presented above is not a screenshot of an honest spreadsheet. There must be missing information, or dodgy formulas, or fudges in there somewhere.
That document looks to be a fraud on its face before we even dig in to context or accounting.
Matt Levine once wrote something about lawyers that fear numbers and bankers that fear words. I can’t find the quote. But I have never seen such compelling evidence he was right.
Gemini’s Earlier Analysis
Back when Gemini Earn started they reviewed Genesis’ books:
As part of the partnership, Gemini reviewed Genesis’ financial statements and verified that the lender’s loans are overcollateralized, said Yusuf Hussain, Gemini’s head of risk.
So they had more-than-public info. Now read the filing again:
So movements in public markets in early 2021 led to the (beginning of the) scheme exploding. What if we rewrite the complaint a little bit:
Ironically, the strategy faltered in large part because Gemini was intent on preserving the giant fees Gemini Earn was generating. Did Gemini ask Genesis about their counterparty exposures? It would seem not. Did they begin immediately taking steps to unwind their exposure, increase collateral calls, and otherwise resolve the escalating liability? It would seem not. Quite the contrary Gemini allowed Genesis to keep those enormous obligations outstanding for another few quarters, continuing to reap huge fees on the deposit portfolio at Gemini Earn. Meanwhile Gemini Earn continued to facilitate borrowing of cryptocurrency assets from Gemini Earn Lenders, again representing that Gemini were careful risk managers. More lies.
That adds essentially nothing and perfectly captures the questions Gemini Earn depositors should be asking.
