(Bloomberg) -- Gemini Trust Co. and its founders, Tyler and Cameron Winklevoss, were sued by investors who claim the crypto asset exchange sold interest-bearing accounts which it failed to register as securities.
The investors accused the company and its founders of fraud and violations of the Exchange Act in a proposed class-action complaint filed Tuesday in Manhattan federal court.
Gemini Trust Earn products attracted investors with the potential for generating as much as 8% in interest on their holdings. In mid-November, though, Tyler and Cameron Winklevoss suddenly halted redemptions after a key partner, Genesis Global, became ensnared in the crypto contagion caused by the implosion of Sam Bankman-Fried’s FTX.
Read more: Gemini Users Are Fed Up. One Is Taking On the Winklevoss Twins
Gemini “refused to honor any further investor redemptions, effectively wiping out all investors who still had holdings in the program,” the investors said in the complaint. Had the products been registered, the investors said they would’ve received disclosures that would have let them assess the risks better.
Gemini didn’t immediately respond to an emailed request for comment, sent after regular business hours.
In a Dec. 23 posting on its website, the company said it’s operating with the “utmost urgency” to resolve the liquidity issues at Genesis and “we will continue to work on your behalf around the clock through the holidays.”
Gemini’s customer agreement specifies arbitration as the sole means of resolving disputes, and many account holders have filed arbitrations claims against it and and Genesis as a result. Customers argue they were misled into believing the Earn products were relatively safe.
The agreement contains language stating that the products are uninsured and carry risks including “total loss” of assets, but claimants argue the terms were deemphasized in Gemini’s marketing.
The case is Picha v. Gemini Trust Co., 22-cv-10922, US District Court, Southern District of New York (Manhattan).
(Updates with arbitration claims.)
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