Exchange Act

Gemini is accused of providing BlockFi with custodial services and misleading information to help BlockFi market its alleged unregistered securities.

An investor with nearly $2 million worth of funds frozen in bankrupt cryptocurrency lender BlockFi has filed a class action complaint against its founders, two directors and crypto exchange Gemini.

In a Feb. 28 complaint filed in the U.S. District Court for the District of New Jersey, investor Trey Greene accused the defendants of numerous wrongdoings, including violating the consumer fraud and exchange acts, breaching its fiduciary duties, as well as offering and selling unregistered securities.

“The unregistered securities sold by the BFI [BlockFi] Defendants on behalf of BlockFi were marketed and sold via a steady stream of misrepresentations and material omissions by Prince and Marquez over several years and through intermittent misrepresentations by Defendant Gemini.”

Greene claims he invested over $1.5 million in interest accounts which are alleged to be unregistered securities, and accrued over $400,000 in capital gains and earned interest which was re-invested.

He is currently unable to withdraw the funds, however, after BlockFi froze all withdrawals on Nov. 10, 2022 — the same day FTX filed for bankruptcy.

Greene further claims that he was induced into buying the “unregistered securities” by misrepresentations from BlockFi’s founders Zac Prince and Flori Marquez that the offerings were comparable to federally-insured bank products.

While the Securities and Exchange Commission (SEC) had charged BlockFi with “failing to register the offers and sales of its retail crypto lending product,” on Feb. 14, the filing claims the exchange had “admitted its [interest] accounts were unregistered securities” during the proceedings that resulted in a $50 million settlement on Feb. 15.

Related: FTX ex-director Nishad Singh pleads guilty to fraud charges

Tyler Winkevoss’ Gemini previously held custody over BlockFi’s clients’ crypto holdings through its custodial services, and is alleged to have misrepresented how accessible these funds were to customers.

“Gemini knew of, and acquiesced in, the materially false and misleading statements about the status the safety and accessibility of Plaintiff’s and class members’ assets at Gemini and about the risks of loss. Gemini supplied materially false and misleading information to BlockFi for use in marketing the BIAs [BlockFi interest accounts].”

Gemini is alleged to have breached the exchange act but was not included in the other allegations.

Greene is seeking damages for each of the alleged counts, including "treble damages" for violations of the consumer fraud act, the costs of his lawyers to be covered, a full refund of all funds acquired by the defendants and accrued interest, as well as a judgment preventing similar violations of the consumer fraud act.

Those represented in the class action are any stockholders of BlockFi that purchased their BlockFi unregistered BlockFi Interest Accounts between Mar. 4, 2019 and Nov. 10, 2022

The defendants will be served with a summons, and must respond to the complaint within 21 days of receiving it or be required to pay the full amount demanded by Greene.

Cointelegraph has reached out to Gemini and BlockFi but did not receive a response by the time of publication.