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Gemini Faces Mounting Legal Battles as Earn User Agreement Riles Customers

2 mins
Updated by Ryan James
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In Brief

  • Gemini Trust Company and its founders have been sued for stifling due diligence on Gemini Earn by not registering the product as a security.
  • Disgruntled investors say they were lured by promises of regulatory oversight and glitzy marketing campaigns.
  • Gemini has not provided a material update to Earn customers since Dec. 20, 2022, after suspending redemptions when partner Genesis revealed liquidity woes.
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Several investors have sued crypto exchange Gemini and its founders for offering Gemini’s Earn product without registering it as a security.

Disgruntled investors claimed that Gemini’s failure to register the product robbed customers of certain disclosures needed for better risk assessment.

Gemini Customer Agreement Restricts Litigation

In a proposed class-action complaint filed in Manhattan, Gemini customers claimed that Earn product’s slick marketing pitch minimized risks clearly outlined in Gemini’s customer agreement. Gemini’s Earn account offered up to 8% returns on crypto deposits. The reputations of Gemini founders Cameron and Tyler Winklevoss burnished the product’s reliability.

However, a closer look at Gemini Earn’s customer agreement reveals the devil in the details. In the agreement, the exchange tells customers that deposits are not insured and that they could lose all their assets. Additionally, customers must agree to resolve disputes by “binding arbitration,” waiving rights to class-action litigation.

“You and Gemini agree to arbitrate solely on an individual basis, and agree and understand that this Authorization Agreement does not permit class action or private attorney general litigation or arbitration of any claims brought as a plaintiff or class member in any class or representative arbitration proceeding or litigation (“Representative and Class Action Waiver”),” the agreement reads.

Despite this clause, Bloomberg reported that a group of disgruntled investors recently convened a Telegram group to discuss the possibility of bringing a class-action lawsuit against Gemini. It is not clear whether the members of the Telegram group are the plaintiffs in the lawsuit, filed on Dec. 27, 2022, in the Southern District of New York.

Earn Customers Await Genesis’ Due Process

Gemini customers are looking for answers after the exchange’s Earn partner, Genesis Global Capital, paused withdrawals earlier this month. This suspension has prevented Earn clients from accessing almost $1 billion of their deposits.

Genesis announced a liquidity crisis in Nov. 2022 after bankrupt hedge fund Alameda Research left the lender with unpaid loans. Beleaguered crypto hedge fund Three Arrows Capital owes Genesis Asia Pacific about $1.2 billion. Houlihan Lokey, a restructuring advisory firm, is advising Genesis’ creditor committee.

Some Earn customers expect the Winklevoss twins to come through, while others are taking the fight to the Harvard alums.

One investor, Eric Asquith, has lodged an arbitration claim against Gemini and Genesis, accusing Gemini of fraud and demanding that they return his funds. He has over $1 million in deposits and accrued interest locked up in Genesis. Investors, including Asquith, have argued that Gemini’s commitment to regulation, coupled with the reputation of its larger-than-life founders, dulled investor due diligence.

On Dec. 20, 2022, Gemini told Earn customers that Houlihan Lokey had presented a plan to make Genesis creditors whole. Since then, the company has provided scant information on the recovery of assets but expects a ‘more fulsome update by the end of the week.’

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...