By Michael Scott
The New York-based company Gemini was sued by investors alleging that the crypto exchange platform failed to register interest-bearing accounts traded on Gemini as security. The embattled Tyler and Cameron Winklevoss, founder of Gemini trust company, were put on trial for contravening the Exchange Act.
Gemini Interest-Bearing Accounts Scandal
In a lawsuit filed on December 27 in Manhattan District Court, the crypto investors lamented that Gemini products were unregistered. The investors accused the firm of withholding relevant information on risk associated with Gemini Earn. As a result, Gemini’s actions were considered unlawful and violated the Security Act of 1933.
On the contrary, Gemini claimed that it had invested in providing a secure platform for its user and had launched a customer complaint feature earlier. The investors responded that the Gemini earn account initially yielded 8% interest before the firm froze redemption of over $700 million.
The Gemini case coincides with Genesis Global’s liquidity crisis and the FTX’s collapse in November. Gemini Earn platform admitted exposure to the two crypto companies and suspended withdrawals indefinitely. It led to the discovery that over $900 million that belonged to Gemini investors got stuck on Genesis and Digital Currency Group (DCG).
Will Gemini Asset Recovery Attempt Succeed?
On December 20, Cameron Winklevoss broke the silence and updated his Twitter page, claiming that Gemini had developed a recovery plan to resolve the liquidity concern. He proclaimed that the report submitted by Houlihan Lokey on behalf of the Creditors Committee would guide the team to recover clients’ assets.
Nonetheless, the test to sustain the operation of Gemini Earn product influenced the firm to hire experienced personnel. Gemini works closely with Kirkland and Ellis law firm to recover user assets.
Correspondingly, crypto lender Genesis took a similar path as Gemini to suspend redemptions and loan service on November 16. Genesis issued a letter to its users on December 7, arguing that the withdrawal suspension would only last for a few weeks. In the meantime, Genesis is liaising with experts to develop a recovery plan.
Possible Solutions to Deter Crypto Fraud in Future
Despite Gemini’s liquidity concern, other troubled crypto exchange companies are facing charges for defrauding users of millions of money. If the court finds the Winklevoss twins guilty other crypto lenders will be forced to adhere to the regulation. Also, the authority will develop restraining rules on interest-bearing accounts to protect investors from losing sizable amounts on fraud activities.
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