Gemini and its Founders Sued for their Interest-Bearing Accounts
- Gemini has been sued by a group of investors along with its founders, Tyler and Cameron Winklevoss.
- The plaintiffs, Brendan Picha and Max J. Hastings, accused the exchange of fraud and violation of the Exchange Act.
- The plaintiffs claim that the Gemini Trust Earn product, which offered 8% return on holdings, was not registered with authorities.
- The exchange did not provide necessary disclosures to allow customers to determine the risks.
Crypto exchanges continue to receive heat from investors following the multi-billion dollar collapse of FTX under Sam Bankman-Fried, also known as SBF in the industry. Moreover, the recent crash in the price of Bitcoin (BTC) and other crypto coins is not doing any favors for the reputation of the industry. Additionally, one of the biggest exchanges in the world, Gemini, has been sued by a group of investors along with its founders, Tyler and Cameron Winklevoss.
According to a report from Bloomberg, investors allege that the US-based crypto exchange sold unregistered securities in the form of interest-bearing accounts. These accounts provide interest to the owners over a specific period of time for depositing and investing amount in them. It is crucial to note that this lawsuit comes a month after Gemini halted withdrawals due to liquidity issues facing one of its business partners.
Brendan Picha and Max J. Hastings, the plaintiffs in the case, have filed the case against Gemini in a Manhattan federal court, accusing the exchange and the Winklevoss twins of fraud and violation of the Exchange Act. Moreover, the group of investors alleges that through the Gemini Trust Earn product, the exchange promised up to 8% returns on their holdings, but the product was not registered with the necessary regulatory bodies and therefore was not safe for investors.
As a result, Picha and Hastings claim that they were not provided with the required disclosures so that they could measure the amount of risk involved with the Trust Earn product. Similar offerings have been under the crosshairs of the United States Securities and Exchange Commission (SEC) for a very long time.
Recently, the SEC imposed a $100 million penalty on BlockFi crypto exchange for its lending product, which was also not registered with the regulator. The exchange had to pay the required sum because it offered interests to its customers, which comes under the regulatory purview of the SEC. The regulatory body stated that “crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940.”
In mid-November, Gemini stated that it would be halting withdrawals due to the financial troubles of its redemptions, which had exposure to the now-bankrupt exchange FTX. Genesis has around $175 million in FTX that were locked and is one of the creditors of the exchange. Picha and Hastings claim that since the exchange halted withdrawals and did not process redemption requests for any interest-bearing account as well, they lost all holdings in the program.
It was confirmed following the withdrawal suspension that Genesis and its parent company, Digital Currency Group, owe about $900 million to users of the Gemini Earn program. The exchange has been trying to recover the funds, but the current situation of the industry is worse than imagined.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
