Gemini Trust to Return $1.1 Billion to Users in Settlement with NY Regulator

    In a landmark development for the cryptocurrency industry, Gemini Trust, a leading exchange platform co-founded by Tyler and Cameron Winklevoss, has agreed to a significant settlement with the New York State Department of Financial Services (NYDFS). The agreement stems from compliance failures within Gemini's Earn investment program, which resulted in substantial losses for users. According to the NYDFS, Gemini will return a minimum of $1.1 billion to users affected by the collapse of the Earn program and pay fines amounting to approximately $37 million.

    The NYDFS investigation revealed critical shortcomings in Gemini's oversight and due diligence processes, particularly concerning its partnership with Genesis Global Capital, a crypto lender. Genesis's bankruptcy left 200,000 Earn customers unable to access virtual currencies totaling around $1.8 billion. Furthermore, the regulator identified deficiencies in Gemini's compliance programs and management oversight, including lapses in customer due diligence and internal auditing.

    Gemini responded to the settlement announcement via social media, stating that a settlement in principle had been reached with Genesis and other creditors. This agreement ensures the return of digital assets to all Earn users. If approved by the bankruptcy court, users can expect to receive approximately 97% of their assets within two months, with the remainder disbursed within the next year. However, Gemini emphasized that the finalization of the settlement is subject to the required documentation and could take up to two months to complete.

    Expressing gratitude to the NYDFS for their role in facilitating the settlement, Gemini reiterated its commitment to advocating for the interests of Earn users. However, the company declined to provide further comment on the matter.

    The Earn program, launched by Gemini in February 2021, enabled customers to lend their cryptocurrencies to Genesis in exchange for interest payments. Genesis's default on loans totaling approximately $1 billion, followed by its bankruptcy filing in January 2023, affected around 30,000 New Yorkers, according to the NYDFS.

    Despite public assurances from Gemini, the NYDFS found lapses in the exchange's due diligence practices concerning Genesis, an unregulated third party. Additionally, Gemini failed to maintain adequate reserves throughout the Earn program's duration, as mandated by its trust charter issued by the NYDFS in 2015.

    As part of the settlement, Gemini has committed to fully repaying cryptocurrencies owed to Earn customers within one year of the effective date of Genesis's bankruptcy plan. Furthermore, Gemini will contribute no less than $40 million to aid in the recovery efforts of Earn customers through Genesis's bankruptcy proceedings.

    NYDFS Superintendent Adrienne Harris emphasized the significance of the settlement, stating that it represents a victory for Earn customers who deserve access to their entrusted assets. However, Gemini faces additional regulatory scrutiny, with ongoing lawsuits from entities such as the U.S. Securities and Exchange Commission (SEC) and the New York Attorney General's office.

    The lawsuit filed by New York Attorney General Letitia James in October alleges fraud totaling over $1 billion, with the state seeking restitution exceeding $3 billion. While Gemini acknowledged Earn program investors as victims of fraud, it contested being named in the lawsuit. Similarly, Digital Currency Group (DCG), Genesis's parent company, expressed intentions to challenge the claims.

    As the legal proceedings unfold, Genesis's legal representatives have yet to comment on the settlement. Nonetheless, the agreement between Gemini and the NYDFS marks a crucial step towards addressing the fallout from compliance failures within the cryptocurrency industry, underscoring the importance of regulatory oversight and accountability in safeguarding investor interests.

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