In a notable development within the cryptocurrency industry, the New York Attorney General’s office (NYAG) disclosed on Friday that Gemini, a major crypto exchange, has consented to pay $50 million in digital assets to investors of its Gemini Earn program as part of a settlement.
This agreement concludes a series of allegations that Gemini had misled investors regarding the inherent risks of the program.
Allegations Against Gemini
Gemini Earn had permitted its customers to loan their cryptocurrencies to the now-bankrupt Genesis Global Capital, LLC, offering returns up to 7.4 percent annual percentage yield (APY).
NYAG Letitia James had accused Gemini of deceiving thousands of investors by promoting the Gemini Earn program as a secure and lucrative 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 settlement announced 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 to unfold in October when the NYAG filed a comprehensive complaint against Gemini, the crypto lending firm Genesis, and the crypto investment company Digital Currency Group (DCG).
The filing revealed a series of misrepresentations that allegedly concealed $1.1 billion in financial losses over several months. Gemini, as per the allegations, reassured its investors that the Earn program facilitated through Genesis entailed minimal risk, contrary to the actual high-risk nature of the investments.
Meanwhile, DCG and Genesis, along with two executives, were accused of disguising these substantial losses through a sustained campaign of false statements and omissions.
Earlier in May, preceding the final settlement, Gemini declared that all Earn users had successfully received their digital assets in-kind.
This meant that investors were returned the exact amount of cryptocurrency they had lent, such as one bitcoin for one bitcoin lent, totaling a reclamation of $2.18 billion in digital assets.
This recovery marked a 232% return rate from the period when Genesis, Gemini’s partner in the Earn program, halted withdrawals, prompting Gemini to also pause its own withdrawal operations.
Ongoing Legal Battles
The strained relationship between Genesis and Gemini has been further complicated by ongoing legal battles and the scrutiny of regulatory bodies including the U.S. Securities and Exchange Commission (SEC) and the NYAG.
In a significant legal move in October 2023, Gemini sued Genesis Global Capital for $1.6 billion concerning 60 million shares of the Grayscale Bitcoin Trust (GBTC) pledged as collateral.
This lawsuit aimed to secure assets that would satisfy the claims of Gemini Earn customers impacted by the suspension of withdrawals by Genesis in the previous year.
In response, Genesis countersued Gemini, seeking to recover $689 million based on allegations of preferential transfers that purportedly favored Gemini at the expense of other creditors.
Moreover, in March 2024, Genesis Global Capital agreed to settle SEC charges related to the Gemini Earn program by paying a $21 million civil penalty.
As part of Genesis’ ongoing bankruptcy proceedings, a court-approved $2 billion settlement established a victims’ fund, particularly for New Yorkers who had collectively invested over $1.1 billion in the Earn program. This settlement also prohibited Genesis from operating its 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 underscores the challenges the crypto industry faces as it navigates the complexities of financial regulations and seeks to establish a trustworthy framework for investors.
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