FTX aftermath: Crypto exchange Gemini's investors lose payouts, sue founders
Tyler and Cameron Winklevoss have been sued alongside Gemini, the crypto exchange they founded, over charges of fraud by investors in the company, Markets Insider reported. The class action complaint was filed in the Manhattan federal court on Tuesday, earlier this week.
Tyler and Cameron, popularly known as Winklevoss twins, have a long history in the technology sector and first made headlines when they sued Mark Zuckerberg, alleging that they had stolen their idea of a social networking site, when he churned out The Facebook, as it was then known.
The lawsuit was settled, and the twins used the money they received to set up Winklevoss Capital to fund their future ventures, such as Gemini, a crypto exchange service that allows users to buy, sell, and store digital assets. The service has operations in the U.S., Canada, Hong Kong, South Korea, and Singapore.
Sued by investors
Buoyed by the popularity of cryptocurrency in the past decade, Gemini began offering a financial product, Gemini Earn Program, that promised guaranteed results. According to Bloomberg's report, the program attracted investors by promising them as much as eight percent returns on their investments.
However, following the collapse of the crypto exchange FTX last month, Gemini abruptly stopped its offering Investors Brendan Picha, and Max J. Hastings have dragged the company to court for failing to register the assets as securities in line with federal law.
According to the complaint, Gemini has refused investor redemptions, effectively wiping out all investors who had holdings in the program. The plaintiffs argue that had the Winklevoss twins registered the assets as securities, the investors would have received disclosures that would have let them assess their risks better.
FTX collapse hits Gemini investors
At the outset, the collapse of FTX may seem to have no impact on other crypto exchanges. Even though experts have warned that financial regulators will go through multiple crypto-companies, the lawsuit on this occasion has not come from the regulators but from the investors themselves.
In the aftermath of FTX's collapse, institutional crypto lender Genesis Capital was also impacted. Genesis is a key partner of Gemini and, following the FTX debacle, has not been able to return the crypto assets it borrowed from Gemini Earn investors, forcing Gemini to stop the program.
A post on its website states that Gemini is working with "utmost urgency" to resolve the liquidity issues at Genesis and will work through the holidays on this matter.
Although FTX's collapse resulted from its ill actions, the cryptocurrency industry was also battered in 2022. The industry started the year riding on the highs of 2021. Still, as the world returned to pre-pandemic normal and macroeconomic conditions changed, cryptocurrencies lost their shine and fell to a quarter of their valuations at the beginning of the year.
One of the biggest crashes in May saw cryptomarket lose $200 billion in just one day. The Winklevoss Twins, once worth four billion each, no longer feature in the Bloomberg Billionaire List.
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