Judge Sides with Crypto Exchange Gemini, Orders Arbitration in Earn Program Lawsuit

News | March 14, 2024 By:

On Tuesday, March 5, 2024, the United States District Court for the Southern District of New York granted a motion to compel arbitration in a dispute between Gemini Trust Company and several individuals who held accounts on the cryptocurrency exchange.

The case originated in late 2022 when plaintiffs Brendan Picha and Max Hastings filed a purported class action against Gemini Trust, its CEOs Tyler and Cameron Winklevoss, alleging securities law violations related to Gemini’s Earn program which allowed users to lend cryptocurrency assets and earn interest. The plaintiffs claimed Gemini misrepresented the program and failed to properly register securities.

Gemini operates a digital asset exchange and custody business. The company launched its Gemini Earn program in 2021 to allow participants to lend digital assets through a third-party firm in exchange for interest on their crypto holdings. In November 2022, the third party Genesis suspended withdrawals from the program after cryptocurrency exchange FTX filed for bankruptcy.

The relationship between Gemini account holders and the company is governed by a user agreement and terms for specific programs. In response to the lawsuit, Gemini sought to compel arbitration, citing arbitration clauses in its various agreements with users. The plaintiffs argued the clauses were invalid and did not apply due to inconsistencies between agreement versions and an alleged lack of user consent to modifications made by Gemini.

In its ruling, the District Court found that Gemini properly modified the user agreement in December 2022 according to terms allowing for changes. The court said users received adequate notification of the modifications through email and by signing in to their Gemini accounts after changes were made. Under New York law, this satisfied the standard for making users aware of and binding them to updated terms, even without express consent.

The court also noted the arbitration clause in the modified user agreement was broad enough to cover the legal claims. While the plaintiffs argued other agreements could govern, the court ruled the user agreement took precedence based on its express language. As a result, the court granted Gemini’s motion to compel individual arbitration and stayed the class action lawsuit pending the outcome of arbitration proceedings.

The case demonstrates how user agreements can be binding even if not originally agreed to, if proper modification procedures are followed. It remains to be seen how an arbitration will ultimately decide the merits of the underlying legal claims.

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