A group of investors has filed a class-action complaint against Gemini Trust Co. and its founders, Tyler and Cameron Winklevoss, alleging that the U.S. cryptocurrency exchange sold unregistered securities in the form of interest-bearing accounts.
The lawsuit comes about a month after Gemini halted withdrawals due to liquidity issues facing one of its business partners.
Gemini Faces Class Action for Fraud
The plaintiffs, Brendan Picha and Max J. Hastings, filed the action in a Manhattan federal court, accusing the company and its founders of fraud and violations of the Exchange Act.
According to the investors, the Gemini Trust Earn products promised up to 8% returns on their holdings but were not registered with the necessary regulatory bodies. As a result, the plaintiffs claim they were not provided with the required disclosures to assess the risks involved.
In mid-November, the Winklevoss twins halted redemptions after Gemini’s business partner Genesis Global ran into financial issues due to FTX’s sudden collapse. According to reports, Genesis had $175 million locked in FTX before the exchange filed for bankruptcy.
Picha and Hastings allege that Gemini then refused to honor any further investor redemptions, leading to the loss of all holdings in the program.
Genesis Owes Gemini About $900 Million
Shortly after the withdrawal suspension, reports revealed that Genesis and its distressed parent company, Digital Currency Group (DCG), owe about $900 million to users of the Gemini Earn program.
Gemini has been trying to recover the funds to no avail. The crypto exchange even established a creditors’ committee to help with the process.
Genesis, on the other hand, has been working to avert bankruptcy. Earlier this month, the firm’s creditors hired restructuring lawyers to save the company from sinking like other firms such as FTX and BlockFi.
Although the crypto broker has no imminent intention of filing for bankruptcy, the firm would be forced to do so if it fails to raise new funds to resolve its liquidity issues.
Meanwhile, Gemini has not yet commented on the class action. However, the crypto exchange said in an update on its website published on December 23 that it was working with “utmost urgency” to resolve liquidity issues at Genesis and would continue to work on behalf of its customers through the holidays.