Jan 18 • 19M

🗞️Winklevoss Twins Face The SEC, JPMorgan Gets Scammed, & Twitter's Fight Over Severance

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Matt Margolis
Oren Peleg
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This Week: The Winklevoss twins are back in litigation, JPMorgan goes to court over a recent acquisition, and ex-Twitter employees say they weren't paid severance. Plus, a new copyright court venue is doing well, and scammers are increasingly eyeing former tech workers.

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♊ Gemini's Double Mess

Tyler and Cameron Winklevoss, who initially rose to fame after suing Mark Zuckerberg for allegedly stealing their idea when he started Facebook, are now embroiled in a nearly $1 billion mess that includes an investigation by the SEC and mudslinging between the Winklevosses and Barry Silbert's Digital Currency Group. The story begins when the Winklevi (thanks, Social Network), created a Bitcoin exchange called Gemini, and then introduced a product called Gemini Earn, which pays interest to customers for their deposits. The SEC took issue with this, and is now charging Gemini with "offering unregistered securities", says the New York Times. Gemini was able to offer interest payments because it was using those customer deposits to loan to Digital Currency Group's subsidiary crypto lender Genesis, which in turn allowed Gemini to take advantage of an arbitrage opportunity. However, as Bitcoin has tumbled in value over the last few months, "Genesis later froze withdrawals," continues the Times. "About 340,000 Earn customers are out about $900 million in crypto assets, the SEC said."

  • Barry Silbert, who runs Digital Currency Group, made his name creating SecondMarket, which allowed shareholders of private companies (like a pre-IPO Facebook) to sell their shares. 

  • “For the past six weeks, we have done everything we can to engage with you in a good faith and collaborative manner in order to reach a consensual resolution for you to pay back the $900 million that you owe, while helping you preserve your business,” Cameron Winklevoss wrote in an open letter to Silbert, reports CNBC.

Spreading Contagion

The collapse of FTX and other crypto firms is no doubt at play in this Genesis-Gemini mess. Silbert's Digital Currency Group "took substantial losses in the summer from our bankruptcy" and the collapse of FTX, Zhu Su, co-founder of Three Arrows Capital, tweeted recently. Su claims that FTX repaid DCG a $2.5 billion loan entirely in FTT coin—which, of course, is now worthless. To wit, however, Bitcoin has regained all its losses since the FTX collapse.

The Verdict

It’s clear that regulation is coming to the crypto market. However, until it does, it seems like contagion from the collapse of FTX will just continue to spread as more investors get hurt, and more companies face SEC investigation.

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🥸 A Scam, Frankly

Turns out JP Morgan Chase isn't immune to scams (big banks, they're just like us!). A lawsuit filed in December alleges that the mega-bank was duped by Frank, a college financial aid start-up acquired by the firm in 2021 for $175 million. Accordingly to JP Morgan Chase, Frank fabricated some 4.25 million student accounts to appear larger than it was. “Frank offers a unique opportunity for deeper engagement with students," the financial titan said at the time of the acquisition, notes The Street. "Together, we’ll be able to expand our capabilities for students and their families, helping them financially prepare for college and other major moments in their future." Yet, in its December suit, the bank was singing a much different tune, says CBS News: "[T]o cash in, [founder Charlie Javice] decided to lie, including lying about Frank's success, Frank's size and the depth of Frank's market penetration in order to induce [JPMorgan] to purchase Frank for $175 million. As the suit continues, when JPMorgan asked for proof of the 4.25 million accounts, Javice deflected over alleged privacy concerns that actually masked Frank's real size (only about 300,000 accounts). JPMorgan is seeking an unspecified amount in damages. 

  • Javice, a UPenn grad, allegedly paid a data science professor $18,000 to fabricate the fake accounts. 

  • In a 2016 interview with Popsugar, Javice touted Frank's goals as the "​​Amazon for higher education."

30 Under 30

In addition to her pending lawsuit by JPMorgan, Javice has a second unique distinction—she was part of Forbes's 2019 list of 30 under 30. The list has included such notorious luminaries in recent years as Elizabeth Holmes, Sam Bankman-Fried, and Caroline Ellison. As Jezebel jokes, Javice is now "on another, more exclusive list: Forbes Prodigies Who’ve (Allegedly) Committed Fraud Before 35."

The Verdict

While we can’t say whether the allegations here are true or not, we can say that if you’re looking to invest in someone who is a Forbes 30 under 30…maybe do double due diligence.

💸 See You in Arbitration

A judge is ordering 5 defendants in a class-action lawsuit against Twitter by former employees alleging the company did not follow through with their severance package to be dropped and be taken up in private arbitrage. As Reuters clarifies, US District Judge James Donato ordered 5 of claimants to drop the suit in favor of private arbitrage, as specified in their employment contracts, but left open whether the entire suit would be dismissed "though, as he noted three other former Twitter employees who alleged they had opted out of the company's arbitration agreement have joined the lawsuit after it was first filed." Twitter did not immediately comment on the ruling, but has noted that it has already filed 500 arbitrage demands, and would likely file hundreds more.

  • Since Elon Musk bought Twitter in late October 2022, Reuters says some 3,700 employees were laid off, and hundreds more have quit or were subsequently fired.

  • Twitter also faces separate lawsuits by women and others who claim they were target of layoffs for discriminatory reasons.

Bill Pay

In addition to its severance pay discrepancies, Axios reports that Twitter isn't paying other financial obligations, like rents on offices. One theory believes that senior managers tasked with maintaining these landlord contracts have all been fired or quit, leaving the task with junior staff. Beyond rents, as the New York Times notes, "Twitter has also refused to pay a $197,725 bill for private charter flights made the week of Mr. Musk’s takeover." 

The Verdict

The jury is still out (literally and figuratively) on Musk’s takeover of the legacy social media platform. That being said, from angry creditors to angry ex-employees to news that he’s looking for an heir, things right now are more mess that success. But hey, if you’re a lawyer looking for work, the Twitter orbit seems to be ripe.

📤 What Else We’re Forwarding

Copyright Claims: A first-of-its-kind venue for small copyright claims disputes has been performing exceedingly well, Bloomberg Law writes. Nearly 300 claims (mostly involving visual art materials) have been filed with the Copyright Claims Board since its inception in June 2022.

Scam Bots: Laid off tech workers are increasingly the target of scammers, The Hustle says. These unemployed workers were victim to over $75 million in scams during Q1 of 2022 alone.

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