Regulation
Gemini fined $50 million in New York settlement
In a notable development in the cryptocurrency industry, the New York Attorney General’s (NYAG) office revealed on Friday that Gemini, a major cryptocurrency exchange, has agreed to pay $50 million in digital assets to investors in its Gemini program Earn as part of a deal.
This settlement ends a series of allegations that Gemini had misled investors about the program’s inherent risks.
Accusations against Gemini
Gemini Earn had allowed its customers to lend their cryptocurrencies to the now-bankrupt Genesis Global Capital, LLC, offering returns of up to 7.4% annual percentage yield (APY).
NYAG Letitia James had accused Gemini of deceiving thousands of investors promoting the Gemini Earn program as a safe and profitable venture.
In reality, according to James, the program misrepresented risks, locked investors out of their accounts, and ultimately prevented them from accessing their funds.
The announced settlement ensures that defrauded investors will receive full recovery of their initial investments. Additionally, the agreement prohibits Gemini from conducting any cryptocurrency lending operations within New York.
The legal dispute began in October, when NYAG filed a comprehensive complaint against Gemini, cryptocurrency lending firm Genesis, and cryptocurrency investment firm Digital Currency Group (DCG).
The filing revealed a series of false statements that allegedly hid financial losses of $1.1 billion over the course of several months. Gemini allegedly reassured its investors that the Earn program facilitated through Genesis carried minimal risk, contrary to the actual high-risk nature of the investments.
Meanwhile, DCG and Genesis, along with two executives, were accused of masking these substantial losses through a sustained campaign of misrepresentations and omissions.
In early May, before the final settlement, Gemini said that all Earn users had successfully received their digital assets in kind.
This means that investors were returned the exact amount of cryptocurrency they had lent, such as one bitcoin for one lent bitcoin, for a total of $2.18 billion in digital assets recovered.
This recovery marked a 232% rate of return since Genesis, Gemini’s partner in the Earn program, halted withdrawals, prompting Gemini to also suspend its own withdrawal operations.
Legal battles underway
The strained relationship between Genesis and Gemini was further complicated by ongoing legal battles and oversight by regulatory bodies, including the Securities and Exchange Commission (SEC) and NYAG.
In a major legal move in October 2023, Gemini sued Genesis Global Capital for $1.6 billion regarding 60 million shares of Grayscale Bitcoin Trust (GBTC) pledged as collateral.
This lawsuit aimed to secure assets that met the demands of Gemini Earn customers affected by Genesis’ suspension of withdrawals in the previous year.
In response, Genesis countersued Gemini, seeking to recover $689 million based on allegations of preferential transfers that allegedly favored Gemini at the expense of other creditors.
Additionally, in March 2024, Genesis Global Capital agreed to settle SEC charges related to the Gemini Earn scheme by paying a civil penalty of $21 million.
As part of Genesis’ ongoing bankruptcy proceedings, a court-approved $2 billion settlement established a fund for victims, specifically for New Yorkers who had collectively invested more than $1.1 billion in the Earn program. This agreement also prohibited Genesis from doing business within the state.
Addressing these myriad issues, Tyler Winklevoss, co-founder and CEO of Gemini, emphasized that the root cause of the turmoil was not cryptocurrency itself, but rather “old-fashioned financial fraud,” compounded by a lack of regulatory clarity .
This sentiment highlights the challenges facing the cryptocurrency industry as it navigates the complexities of financial regulations and seeks to establish a reliable framework for investors.