Gemini commits to returning $1.1 billion to Earn users

Gemini, the cryptocurrency exchange founded by the Winklevoss twins, has agreed to a settlement with the New York State Department of Financial Services (NYDFS) over compliance failures related to its Gemini Earn lending program.

This settlement mandates Gemini to reimburse at least $1.1 billion to its customers, marking a crucial step toward resolving the issues surrounding the now-defunct program.

Launched in 2021, the Gemini Earn program allowed users to lend their cryptocurrencies to the now-bankrupt Genesis Global Capital, LLC, promising returns of up to 7.4% APY. However, the program hit a snag when Genesis faced a financial crisis, freezing assets and leaving Gemini Earn customers unable to access their funds.

NYDFS Superintendent Adrienne Harris criticized Gemini for not performing adequate due diligence on Genesis, an unregulated entity later accused of massive fraud. Harris hailed the settlement as a victory for Earn customers, highlighting their right to the assets they trusted with Gemini.

Under the terms of the settlement, Gemini is tasked with ensuring the return of the $1.1 billion to Earn customers as part of the ongoing bankruptcy proceedings of Genesis Global Capital, LLC. Additionally, Gemini will contribute $40 million towards the bankruptcy process. The NYDFS also retains the right to take future actions against Gemini should it fail to fulfill these obligations.

The regulatory body pointed out Gemini’s oversight failures, including inadequate vetting and monitoring of Genesis Global Capital and failing to maintain sufficient reserves for the Earn program. These lapses, according to the NYDFS, not only tarnished Gemini’s reputation but also left over 200,000 Earn customers, including almost 30,000 New Yorkers, in limbo regarding access to their virtual currency.

This settlement is part of a broader legal landscape Gemini navigates, including lawsuits from the New York Attorney General’s Office and a prior settlement with Genesis Global Holdco and its parent company Digital Currency Group. Moreover, the Securities and Exchange Commission (SEC) had earlier flagged the Gemini Earn program as an unregistered securities offering, contributing to the complexities of Genesis Global Holdco’s bankruptcy proceedings initiated in January 2022 following significant financial setbacks.

In late 2023, bankrupt crypto lender Genesis and its parent company Digital Currency Group proposed a remuneration deal that could enable Gemini Earn users to recover 95-110% of their claims. Additionally, DCG’s bankruptcy plan outlines a potential path for unsecured creditors who could receive between 70% to 90% of their owed amount in USD, and in-kind recoveries could range from 65% to 90% based on the asset allocation. However, Gemini claims that the plan lacks clarity and crucial information, which raises concerns.

Owing creditors at least $3.4 billion, Genesis had already halted most activity on its platform and froze customer redemptions in November 2022, citing a liquidity crunch triggered by significant exposure to FTX.

Earlier in April, Gemini received a personal $100-million loan from its founders. However, it was not clear whether the $100 million loan and the $100 million Earn commitment from Gemini are related or two separate initiatives. The loan was reportedly made by the Winklevoss twins to fund Gemini amid the crypto market downturn, while the Earn commitment was announced as part of the restructuring deal and recovery plan.