Gemini, a cryptocurrency exchange founded by the Winklevoss twins, is being sued by investors who claim that the company misled them about the potential returns of a high-yield product.
Investors allege that Gemini sold unregistered securities in the form of interest-bearing accounts, and filed a complaint in a New York court on Dec. 27. The group of investors filed a complaint in a Manhattan court, accusing Gemini and its founders of fraud and violating the Exchange Act.
The complaint may lead to a class-action lawsuit.
Investors claim Gemini burned them
According to the complaint filed by investors, Gemini refused to allow additional investors to redeem their holdings in the program, resulting in a complete loss for those who still held the investment. The investors also stated that if the products offered by Gemini had been appropriately registered, they would have received disclosures that would have allowed them to better understand and assess the risks involved.
The complaint also claims that the Gemini Trust Earn products, which promised the potential for returns of up to 8% on investments, were not properly registered and therefore did not provide necessary disclosures to investors about the potential risks. The lawsuit follows the sudden halt of redemptions on the interest-bearing accounts in November after a partner company, Genesis Global, faced difficulties due to the collapse of another cryptocurrency exchange.
The investors are seeking damages of more than $5 million.
Gemini responds to the claims
Gemini did not immediately respond to an email requesting comment, which was sent outside regular business hours. Gemini recruited financial services firm Houlihan Lokey, which is working as the creditor committee’s financial advisor, to settle the financial challenges faced by Genesis and DCG and recover assets.
Gemini stated on its website that it is collaborating with Genesis and DCG and is acting with urgency, with all stakeholders remaining involved and collaborative.
Additionally, Gemini shared an update stating that the company has been working towards a resolution even during the Christmas holiday. The company expects to provide a more comprehensive update by the end of the week.
This is not the first time Gemini has faced legal challenges related to its high-yield earnings product. In early 2021, the company was sued by a group of investors who claimed that the product was a “Ponzi scheme” designed to defraud them. Gemini denied those allegations and was ultimately able to settle with the plaintiffs.
It remains to be seen how the latest lawsuit will play out, but it serves as a reminder of the risks involved in the highly volatile world of cryptocurrency investing. While the Winklevoss twins have built a reputation for being early adopters and advocates of bitcoin and other digital assets, their involvement in the industry has also led to some legal battles.