DFS Mandates Gemini to Refund $1.1B to Earn Users and Pay $37M Fine
The New York State Department of Financial Services (DFS) has reached a significant settlement with Gemini Trust Company, LLC, a well-known cryptocurrency exchange and custodian. This enforcement action, overseen by Superintendent Adrienne A. Harris, requires Gemini to reimburse at least $1.1 billion to customers of its Earn program, following complications related to the bankruptcy of Genesis Global Capital, LLC (GGC).
Gemini, co-founded by Cameron and Tyler Winklevoss, launched its Earn program in February 2021, allowing customers to lend their cryptocurrencies to GGC in exchange for interest payments. However, the platform encountered issues when GGC defaulted on around $1 billion in loans from Earn customers, leading to withdrawal suspensions and eventual bankruptcy.
Superintendent Harris emphasized the lack of proper due diligence by Gemini regarding GGC, an unregulated third party, which resulted in significant financial and reputational harm to over 200,000 Earn customers, including nearly 30,000 New Yorkers. The settlement not only aims to rectify the damage done to these consumers but also serves as a caution to the crypto industry regarding regulatory compliance and customer asset protection.
As part of the settlement, Gemini will allocate $40 million to the GGC bankruptcy estate to aid in returning assets to Earn customers. Additionally, Gemini will pay a $37 million penalty for compliance failures that compromised the safety of its operations.
The DFS investigation revealed that Gemini’s Earn program lacked proper oversight and reserves management. Furthermore, an unregulated affiliate, Gemini Liquidity, LLC, was found to have diverted hundreds of millions in customer fees, weakening Gemini’s financial position. These findings highlight the complex financial and regulatory challenges faced by cryptocurrency entities, particularly when interacting with traditional financial systems.
This settlement has wide-reaching implications for the crypto industry, signaling the strict approach regulatory bodies are taking towards compliance and consumer protection. It sets a precedent for the level of scrutiny and accountability that crypto platforms can expect in the future.
The DFS remains committed to upholding the integrity of the financial market, ensuring that licensed entities like Gemini adhere to state regulations and prioritize customer interests. This case underscores the intricacies of virtual currency businesses and the necessity for clear regulatory frameworks to govern their operations.
The Gemini settlement is expected to restore trust among consumers in the platform and the broader crypto market, demonstrating that regulatory bodies are actively working to safeguard investors’ interests. It may also compel other crypto entities to enhance their compliance measures to avoid facing similar penalties.
