Winklevoss-led Gemini agrees to return over $1 billion to customers in deal with NY regulator that includes $37 million fine – Fortune

Twins Cameron Winklevoss and Tyler Winklevoss. Christy Bowe—Corbis/Getty Images

The New York Department of Financial Services on Wednesday announced a settlement related to Gemini, the cryptocurrency company founded by the Winklevoss twins, and its product Gemini Earn.

As part of the consent order, Gemini agreed to pay a $37 million fine and fully repay more than $1 billion in funds owed to Earn customers.

The agreement is the latest blow for Gemini, which also faces lawsuits from the New York State Attorney General and the Securities and Exchange Commission over a controversial earn product it launched with digital currency group financier Genesis. ing. In particular, Gemini will not be forced to waive the trust charter issued by DFS.

“Gemini failed to conduct due diligence on unregulated third parties, which were later accused of massive fraud, harming Earn customers who suddenly lost access to their assets after the bankruptcy of Genesis Global Capital. ” DFS Superintendent Adrian Harris said in a statement. luck.

I can’t earn money

Founded in 2015, Gemini received a significant trust charter from DFS in the same year, allowing it to operate as a regulated cryptocurrency business under the state’s first oversight regime.

During the last bull cycle, Gemini, which operates primarily as an exchange, launched its ill-fated earn program that allows customers to lend out cryptocurrencies at yields of up to 13%. The sole counterparty in the deal is Genesis, the lending arm of Barry Silbert’s cryptocurrency empire Digital Currency Group, which also owns hedge fund Three Arrows Capital and FTX-aligned trading firm Alameda Research. It lent cryptocurrencies to companies such as

When the crypto market collapsed in 2022, so did Genesis, with lenders freezing withdrawals in November. Genesis fell into a controversial bankruptcy in early 2023, putting it at odds with both Gemini and its parent company, Digital Currency Group. A separate October lawsuit by New York Attorney General Letitia James said Gemini was aware of Genesis’ risky arrangements before the assets were locked up, but did not disclose those concerns to customers. More than 200,000 Earn customers have a total of more than $1.7 billion in cryptocurrencies frozen on the platform.

In parallel with James’ lawsuit, the SEC also filed charges against Gemini and Genesis, accusing Gemini Ahn of offering unregistered securities.It’s Genesis resolved There is ongoing litigation against Gemini with the SEC.

The lingering question was when DFS, which oversees Gemini Arne, would take luck It was reported in December that Gemini had sought and received regulatory approval for Gemini Earn, and that DFS was actively investigating the collapse.

In Wednesday’s consent order, DFS alleges that Gemini mismanaged the program, failed to conduct sufficient due diligence on Genesis and failed to prevent harm to customers by making misleading representations to customers. did. Additionally, Gemini failed to maintain adequate risk and liquidity reserves. According to the order, Gemini lacked sufficient visibility into Genesis’ risk exposure and did not seek further information until mid-2022, a year after Earn’s launch.

Gemini’s leadership decided to terminate Arn in September 2022, but did not take steps to do so until mid-October. Even after sending Genesis a notice to suspend the program, Gemini continued to lend cryptocurrencies to Genesis and sign up thousands of new customers. FTX went bankrupt the following month. DFS described the failure as a “serious failure that threatens the safety and soundness of the company.”

In January, DFS reached a separate settlement with Genesis Global Trading, a separate division of Digital Currency Group and not involved in the Earn Program. As part of the settlement, Genesis Global Trading agreed to surrender BitLicense and cease operations in New York. The company is in the midst of downsizing.



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