Recently, crypto exchange Gemini made headlines when it agreed to return a minimum of $1.1 billion to customers of its defunct Gemini Earn Program as part of a settlement deal with New York regulators. This decision came after facing legal issues from the US Securities and Exchange Commission (SEC) and the New York Attorney General’s office. The New York Department of Financial Services (NYDFS) announced the terms of the settlement, which included the repayment of at least $1.1 billion to Earn users, a $40 million contribution to Genesis Global Capital’s bankruptcy proceedings, and a fine of $37 million to the agency.
Gemini launched the Earn program in 2021, partnering with Genesis Global Capital, an arm of Digital Currency Group (DCG). However, things took a turn for the worse in 2022 when FTX’s crash caused Genesis to halt withdrawals, ultimately affecting Gemini Earn users. This chain of events led to Genesis filing for Chapter 11 bankruptcy in January 2023, resulting in over 200,000 Earn customers being unable to access their funds. The DFS revealed that Genesis defaulted on loans valued at about $1 billion, highlighting the massive financial harm caused to Earn customers.
The Failure of Due Diligence
Superintendent of the New York DFS, Adrienne Harris, did not mince words when calling out Gemini’s costly blunder. She pointed out that the company failed to conduct proper due diligence on Genesis Global Capital, an unregulated third party, which later faced accusations of massive fraud. This oversight led to Earn customers facing a sudden inability to access their assets after Genesis Global Capital experienced a financial meltdown. The NYDFS explicitly stated that further action could be taken against Gemini if the minimum of $1.1 billion was not returned to Earn users post the resolution of the Genesis bankruptcy.
Gemini assured Earn users that they would receive “100% of their digital assets back in kind” after reaching a settlement on principle with Genesis and other creditors. It was mentioned that customers could anticipate receiving approximately 97% of their assets within two months after approval and the remaining balance within the next 12 months. While this settlement is contingent on approval by the bankruptcy court, it offers a glimmer of hope for those affected by the Gemini Earn Program debacle.
Despite settling with the NYDFS, Gemini still faces legal actions from the US SEC and the New York Attorney General Letitia James. The Attorney General initially sued DCG, Genesis, and Gemini for an alleged $1 billion fraud related to Gemini Earn. However, the figure was later increased to $3 billion in February 2024 as more investors reported losses. This ongoing legal battle underscores the complexities of navigating the regulatory landscape within the cryptocurrency industry.
Gemini’s agreement to return $1.1 billion to customers marks a significant step towards resolving the fallout from the Gemini Earn Program debacle. The repercussions of this incident serve as a cautionary tale for industry players, highlighting the importance of conducting thorough due diligence and adhering to regulatory protocols to safeguard customer interests and maintain trust within the cryptocurrency ecosystem.