Gemini to repay more than $1.8 billion to win customers in regulatory settlement

Cryptocurrency exchange Gemini announces it will return more than $1 billion to Earn program customers under a regulatory settlement with the New York State Department of Financial Services (NYDFS)

Repay all customers’ assets at the price of the day

On February 28, Gemini, founded by the Winklevoss brothers in 2014 Trust Company announced that it has reached an in-principle settlement with Genesis and other creditors in the company's bankruptcy proceedings.

The settlement will allow Earn Project clients to “recover 100% of their digital assets in physical form.”

The announcement further explains that if approved by the bankruptcy court, users can expect to recover their assets on a 1:1 basis:

After lending Bitcoins in the Earn program, you will get the same amount of Bitcoins back when you choose to redeem. Therefore, any appreciation in value since the asset was borrowed into the Earn plan will also be returned to you.

According to the cryptocurrency exchange’s claims, they will return more than $1.8 billion in assets at that day’s price, which is $700 million more than what Genesis’ assets were worth when it stopped withdrawals two years ago.

Upon approval of the settlement, users can expect to receive approximately 97% of their assets within 2 months. The remaining 3% of assets are expected to be returned within 12 months of approval.

Gemini clarified that the required bankruptcy court proceedings could take up to two months to complete. Furthermore, it said that, in principle, the settlement was subject to final documentation.

Genesis Agreement with SEC

Gemini and Genesis Global Capital (GGC) co-launched the Earn program. Launched in February 2021, the program allows users to earn passive income through interest payments.

These interests are accrued after users lend their digital assets to GGC through the Earn program, and the company then lends these assets to its peers.

Customers raised the alarm in November 2022 when Genesis requested that withdrawals from the program be suspended. Two months later, in January 2023, the service was permanently terminated.

Soon after, the U.S. Securities and Exchange Commission (SEC) filed charges against the two companies, saying they then offered unregistered securities through the Earn program.

Earlier this month, GGC reached a settlement with the SEC, ending civil litigation against the company. Under the settlement, it agreed to pay a $21 million civil penalty, with the amount contingent on the company's repayment to customers and creditors.

Gemini fined for failure to exercise due diligence

On Wednesday, Adrienne Harries, head of the New York State Department of Financial Services (NYDFS), announced that the cryptocurrency exchange will contribute $40 million to the Genesis Global Capital bankruptcy case.

In addition, Gemini will pay a $37 million fine to NYDFS for "significant failures" in protecting customers that "threatened the company's security."

NYDFS concluded that the company failed to conduct adequate due diligence on GGC and failed to "maintain adequate reserves throughout the life of Earn."

Chief Harries said the settlement was a win for Earn users. Customers will regain rights to assets they entrusted to the exchange and failed to protect.

Harries said:

"Gemini's failure to conduct due diligence on unregulated third parties, resulting in subsequent accusations of massive fraud, harmed Earn customers who were suddenly unable to access their assets following Genesis Global Capital's financial crisis."

Finally, NYDFS announced that as part of the settlement, it reserves the right to take further legal action if the company fails to meet its obligation to return at least $1.1 billion to Earn program customers.

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