Per court filings from Tuesday, December 27, crypto exchange Gemini is being sued by investors Brendan Picha and Max J. Hastings for suddenly halting its interest-earning program, Gemini Earn, in November. The class action lawsuit, filed on behalf of these two plaintiffs and “others similarly situated,” was filed in the US Southern District Court of New York. Per the complaint, a trial by jury is being sought.
The Gemini Earn program offered investors who loaned out their crypto assets interest rates of up to 7.4%. Picha and Hastings claim Gemini did not register these assets as securities and, thus, did not abide by the United States securities law.
The filing details the cessation of the Earn program on Wednesday, November 16, after exchange titan FTX filed for bankruptcy. This event generated widespread fallout for the entire crypto industry and resulted in a liquidity crisis at Genesis Trading. As Genesis served as Gemini’s borrower, both organizations were affected by the FTX collapse.
The FTX-Alameda bankruptcy sent shockwaves through crypto investors on a global scale. With their confidence in digital assets diminished, customers immediately began to withdraw funds in mass. The fallout was swift when Genesis Global Capital announced it would be “suspending customer redemptions” pertaining to the Earn program on November 16.
In just 24 hours, Gemini saw the removal of $485 million in assets. This amount was the largest among crypto exchange firms. As withdrawals continued, outflows totaled $563 million, with inflow amounts of only $78 million. Over the course of seven days, Gemini saw net outflows totaling $682 million.
The lawsuit claims that “when Genesis encountered financial distress as a result of a series of collapses in the crypto market in 2022, including FTX Trading LTD., Genesis was unable to return the crypto assets it borrowed from Gemini Earn investors.” The lawsuit further details the impact on Gemini customers as “wiping out all investors who still had holdings in the program, including Plaintiffs.”
In its announcement of halting the Gemini Earn program, Genesis cited the “loss of industry confidence caused by the FTX implosion.”