Winklevoss Brothers, the creators of the Gemini exchange, is facing a lawsuit from users over the Gemini Earn interest-earning platform.
According to Bloomberg, unsatisfied investors have filed a lawsuit against Gemini founders, accusing the company of fraud and breaches of securities regulations.
The lawsuit, filed on December 27 in Manhattan federal court, claims that the Winklevoss brothers failed to “honor any further investor redemptions” after suspending them owing to their connection to failing trading business Genesis Global Capital.
According to the lawsuit, if the items had been registered as securities, customers would inform about their risks. Gemini Earn, which began last year, promised to pay up to 8% interest on crypto assets.
The lawsuit says:
Gemini sold GIAs with repeated false and fraudulent claims, including that GIAs were a secure manner of collecting interest.
Moreover, Gemini Earn began experiencing serious troubles in mid-November, or shortly after the initial reports suggested FTX’s liquidity concerns.
Gemini Halted Withdrawals After FTX Collapse
However, the crash of FTX triggered a liquidity difficulty for Gemini as well as Genesis Trading, which functioned as Gemini’s borrower in the program.
The failure resulted from the crash of the FTX in November. In partnership with Genesis, the crypto exchange offers a product called Gemini Earn. It allows buyers to earn 8% interest by lending out their crypto, including Bitcoin and stablecoins tied to fiat currencies.
Based on a Financial Times report posted on December 3 that claimed persons familiar with the case, cryptocurrency lender Genesis and its parent firm Digital Currency Group (DCG) owe $900 million to Gemini’s clients.
Additionally, Cameron Winklevoss said on Twitter on December 20 that Gemini has developed a proposal on behalf of the creditor committee to fix the liquidity concerns at Genesis and DCG and recover the assets.
Earn Update: Today, Houlihan Lokey presented a plan on behalf of the Creditor Committee to resolve the liquidity issues at Genesis and DCG and provide a path for the recovery of assets.
— Cameron Winklevoss (@cameron) December 20, 2022
Genesis released a statement to its clients on December 7th. Therefore, it says that its withdrawal freeze would last a few weeks as it worked to restore users’ assets. Withdrawals were suspended on November 16, claiming “extraordinary market turbulence” prompted by the collapse of FTX.