The Fail Gene appears in B5F and B6F of the Secret Laboratory within the Midnight Channel. It will attempt to cast status ailments on the party before attacking. After being defeated, it may drop the Stretchy Object material. Selling 6 Stretchy Objects will unlock the Sleipnir weapon for Chie Satonaka in the shop.
In Golden, it appears in the same locations, and may also drop Rose Quartz for trade at Shiroku Pub.