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Gemini Trust Co. and its founders Tyler and Cameron Winklevoss are facing a class-action lawsuit over claims the crypto exchange sold interest-bearing accounts without registering them as securities, per Bloomberg.
In a class-action complaint filed in the U.S. District Court for the Southern District of New York on Tuesday, investors accuse the company and its founders of fraud and violations of the Exchange Act.
Gemini, which Cameron and Tyler Winklevoss founded in 2015, had its own high-yield product called Gemini Earn that allowed customers to deposit their cryptocurrency for interest, similar to a bank account, offering returns of between 0.45% and 8% on their holdings, depending on the asset.
Gemini abruptly suspended withdrawals for Earn last month after Genesis Global—the exchange’s key partner—faced a liquidity crisis amid the contagion sparked by the collapse of FTX, Alameda Research, and scores of other crypto entities.
According to reports earlier this month, Genesis and its parent company Digital Currency Group (DCG) owe Gemini Earn users $900 million.
In their complaint, the investors said that Gemini “refused to honor any further investor redemptions, effectively wiping out all investors who still had holdings in the program.”
The plaintiffs also allege that had the Gemini Earn product been registered, the investors would have received disclosures allowing them to better assess the associated risks.
Gemini didn’t immediately respond to Decrypt’s request for comment.
To address the liquidity issues at Genesis and DCG and provide a path for the recovery of assets, the New York-based company earlier this month turned to financial services company Houlihan Lokey, which acts as the financial advisor of the creditor committee.
In a posting on its website last week, the exchange said it continues to work with Genesis and DCG and is operating “with the utmost urgency,” with all parties remaining “engaged and collaborative.”
Gemini shared another update on Tuesday, saying the company “continued to work through the Christmas holiday towards a resolution.”
According to Gemini, “a more fulsome update” is expected by the end of this week.
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