NY Regulator Urges Gemini to Refund $1.1B to Earn Customers

Gemini has reached an agreement with the New York Department of Financial Services (NYDFS) to refund around $1.1 billion to participants of its Gemini Earn program. This decision comes after users faced challenges withdrawing their funds coinciding with the downfall of the cryptocurrency exchange FTX.

The settlement underscores Gemini’s commitment to reimbursing Gemini Earn users, who sought to capitalize on higher interest rates by committing their cryptocurrency to the program. Unfortunately, Genesis, the crypto lending platform supporting Gemini Earn, went bankrupt three months post-FTX’s collapse in November 2022, leading to a freeze on customer assets.

Regulatory Actions and Customer Concerns

NYDFS’s Superintendent Harris indicated Gemini’s oversight in evaluating Genesis’s reliability for the Earn Program, associating the failure with a significant financial crisis at Genesis Global Capital. The lack of due diligence by Gemini, according to Harris, exposed Earn customers to considerable risks, culminating in their inability to access their investments. Additionally, Gemini will pay a $37 million penalty to NYDFS for critical lapses affecting the firm’s integrity and security.

The uncertainty surrounding the return of assets for Gemini Earn customers has been a source of significant concern. Speculations have been rife about the potential loss of investments, with reports suggesting that users might only recover 61% of their crypto’s value as of January 19, 2023, the date Gemini declared bankruptcy.

Moreover, confusion about asset protection under the Federal Deposit Insurance Corporation (FDIC) further complicated matters for Gemini Earn participants. Reports from January 2023 highlighted misunderstandings among some customers who believed their investments were FDIC-protected, contrasting with the exchange’s failure to clarify the FDIC status of its bank deposits and customer products.

Implications and Future Measures

This settlement with NYDFS marks a pivotal step for Gemini in addressing the fallout from its association with Genesis and the broader impacts of FTX’s collapse on the crypto market. The agreement not only reflects Gemini’s efforts to rectify the situation for affected customers but also underscores the regulatory scrutiny facing cryptocurrency exchanges and lending platforms.

Gemini’s willingness to fulfill its reimbursement commitments is critical, as NYDFS has warned of further actions if the exchange fails to comply. This situation highlights the importance of due diligence and regulatory compliance in the rapidly evolving cryptocurrency sector, where partnerships with third-party platforms can expose customers and companies to unforeseen risks.