Crypto exchange Gemini recently reached a settlement with New York regulators to return a minimum of $1.1 billion to customers who were affected by the collapse of its Gemini Earn Program. This settlement also includes a $40 million contribution to Genesis Global Capital’s bankruptcy proceedings and a $37 million fine imposed by the New York Department of Financial Services (NYDFS). The fallout from the collapse of the program has put Gemini, led by Tyler and Cameron Winklevoss, under intense scrutiny from regulatory authorities.
The Earn program was launched in 2021 in partnership with Genesis, an arm of Digital Currency Group (DCG). However, the collapse of FTX in 2022 led to Genesis suspending withdrawals, leaving over 200,000 Earn customers unable to access their funds. This ultimately led to Genesis filing for Chapter 11 bankruptcy in January 2023, with defaulted loans totaling around $1 billion. The failure of due diligence on the part of Gemini in vetting its partner, Genesis Global Capital, has been cited as a major oversight that caused financial harm to Earn customers.
Gemini has committed to returning 100% of digital assets to Earn users following the settlement agreement with Genesis and other creditors. While the settlement is pending approval by the bankruptcy court, Earn customers can expect to receive approximately 97% of their assets within two months of approval and the remaining balance within the next 12 months. Despite this settlement with NY regulators, Gemini is still embroiled in legal battles with the US Securities and Exchange Commission (SEC) and the New York Attorney General Letitia James. James initially sued DCG, Genesis, and Gemini for a $1 billion fraud related to Gemini Earn, but the amount has since been increased to $3 billion based on additional investor claims.
The costly blunder by Gemini serves as a cautionary tale for cryptocurrency exchanges and financial institutions to conduct comprehensive due diligence when entering into partnerships or launching new programs. The lack of oversight in the case of Gemini Earn resulted in significant financial losses for customers and has led to legal repercussions for the exchange. Moving forward, it is imperative for companies in the crypto space to prioritize transparency, compliance, and consumer protection to avoid similar pitfalls and maintain trust in the industry.
The Gemini exchange’s handling of the Gemini Earn Program and subsequent fallout highlights the importance of regulatory compliance, due diligence, and risk management in the cryptocurrency sector. The exchange’s commitment to repaying affected customers is a step in the right direction, but it must address the legal challenges it faces to rebuild its reputation and ensure compliance with regulatory standards. Ultimately, the incident underscores the need for industry players to prioritize investor protection and regulatory adherence to foster a more sustainable and trustworthy crypto ecosystem.