On Tuesday, investors accused Gemini Trust Co. and its founders Tyler and Cameron Winklevoss of fraud as well as federal and state violations. The proposed class-action complaint was filed in the United States District Court for the Southern District of New York. The crypto asset exchange has been accused of selling interest-bearing bonds accounts that were not registered as securities by the company. The suit says that the company violated both federal and state security laws. It also violated the 1933 Securities Act.
Investors were attracted to Gemini Trust Earn products as they offered a potential of up to 8 percent interest on holdings. In mid-November, the Winklevoss twins stopped redemptions as a key partner Genesis Global was embroiled in a crypto contagion after Sam Bankman-Fried led FTX exchange, Alameda Research and other crypto companies kept collapsing like a house of cards.
In the complaint, investors said that the company Gemini Trust “refused to honor any further investor redemptions” which led to a wipeout of investors who still had holdings in the program. The investors believe that a registration of the products by the company would have resulted in them receiving disclosures and that would have helped the investors to asses the risks in a better way.
On December 23, the company’s website said that it was working with “utmost urgency” to resolve Genesis’ liquidity issues and that the company would continue to work 24X7, without a break for holidays to resolve the issues of its customers.
Gemini’s customer agreement says that arbitration is the only means of resolving disputes. It also states that its products are uninsured and lists “total loss” of assets as a risk. However, the complainants say that Gemini’s marketing did not emphasize these risks. Many customers have filed complaints against both Gemini and Genesis.
The resolution of this case is expected to have far reaching consequences. If found guilty, Gemini Trust could set a precedent and force other exchanges to follow existing regulations. If the company is pulled up for its current behavior, the government could also add further regulations that offer protection to millions of investors who have been at the receiving end of frauds and scams related to cryptocurrency.
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