Gemini to Return $1.1 Billion to Customers and Pay Fine in Regulatory Settlement
The market dislocation led to Genesis filing for bankruptcy, triggering extensive litigation involving Gemini, Genesis, and Genesis's parent company, Digital Currency Group (DCG).
Crypto exchange Gemini has agreed to settle a lawsuit with the New York State Department of Financial Services (NYDFS) over compliance failures related to its Gemini Earn lending program. As part of the settlement, Gemini will pay a substantial fine and return at least $1.1 billion to customers of its Earn program, which was offered by the Winklevoss twins-led company.
Gemini, founded by Cameron and Tyler Winklevoss, had previously sued DCG over the failure of their joint crypto lending partnership. The collaboration between the two companies, initiated in December 2020, allowed Gemini customers to loan their crypto assets to Genesis in exchange for earning interest, resulting in the accumulation of billions of dollars' worth of crypto assets from investors.
Gemini Earn, launched in 2021, allowed customers to lend their cryptocurrencies to Genesis Global Capital, LLC, with the promise of earning up to 7.4 percent annual percentage yield (APY). However, the program faced legal scrutiny after Genesis Global Capital, the borrowing entity, experienced financial troubles, leading to significant losses for Earn customers.
The market dislocation led to Genesis filing for bankruptcy, triggering extensive litigation involving Gemini, Genesis, and Genesis's parent company, Digital Currency Group (DCG). As part of the settlement, Gemini commits to returning funds held in Earn accounts to customers who have been unable to access them since late 2022. NYDFS retains the right to take further action against Gemini if it fails to fulfill its obligation to return the funds following the resolution of Genesis' bankruptcy. Gemini has also pledged to contribute $40 million towards the conclusion of Genesis' bankruptcy to benefit Earn customers.
NYDFS Superintendent Adrienne Harris emphasized the importance of the settlement in ensuring that Earn customers recover the assets they entrusted to Gemini. The regulator cited Gemini's failure to conduct due diligence on Genesis Global Capital, an unregistered third party, which resulted in reputational and monetary harm to both Gemini and its customers.
In response to the settlement, Gemini expressed gratitude to NYDFS and reiterated its commitment to advocating for Earn users and facilitating the return of their assets. The exchange highlighted the settlement's achievement in delivering a coin-for-coin recovery for Earn users, signaling a step towards resolving the legal and financial implications of the Earn program's closure.
