Gemini to pay $37 million fine, return over $1 billion to Earn customers in settlement with NY regulator

Crypto exchange Gemini agreed to pay a hefty fine to a New York financial regulator over compliance failures and has to return at least $1.1 billion to Gemini Earn lending program customers. 

The settlement, which was announced on Wednesday by the New York State Department of Financial Services, is the latest in the legal saga of the Gemini Earn program. Gemini Earn, which was offered by the Winklevoss twins-led company, launched in 2021 and allowed Gemini customers to loan their crypto to now bankrupt Genesis Global Capital, LLC and then earn up to 7.4 percent APY. 

“Gemini failed to conduct due diligence on an unregulated third party, later accused of massive fraud, harming Earn customers who were suddenly unable to access their assets after Genesis Global Capital experienced a financial meltdown,” said NYSDS Superintendent Adrienne Harris, in a statement. “Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini.” 

As part of the settlement, NYDFS said it can bring future actions against Gemini if it does not return the $1.1 billion to Earn customers as part of the Genesis Global Capital, LLC bankruptcy. Gemini will also contribute $40 million to the ongoing bankruptcy, NYDFS said. 

"Gemini commits to working through the bankruptcy process to ensure that Earn Customers make a full recovery of their virtual currency," NYDFS said in a statement. 

Gemini failed to vet or monitor Genesis Global Capital, which was not registered with the regulator, NYDFS said. 

"Gemini’s failure to conduct sufficient and ongoing due diligence on GGC, as well as its failure to maintain adequate reserves throughout the life of Earn, caused significant reputational and monetary harm to Gemini itself and, to date, over 200,000 Earn customers, including almost 30,000 New Yorkers, remain unable to access their virtual currency," NYDFS said on Wednesday. 

If the settlement is approved by the bankruptcy court, Earn users will receive "100% of their digital assets back in kind," Gemini said in a statement on Wednesday. 

"We recognize the hardship presented by this lengthy process, and we are deeply appreciative of our customers’ patience and support along the way," the exchange said. 

Gemini Earn's legal saga

Separately, the New York Attorney General's Office has also sued Gemini, Genesis Global Holdco and its parent company Digital Currency Group over the crypto lending program. Earlier this month Genesis said it reached a resolution with the NYAG. 

A month earlier Genesis Global Holdco also settled a lawsuit brought by the Securities and Exchange Commission against both Genesis and Gemini. 

The SEC said the Gemini Earn program was an unregistered securities offering where they were able to raise "billions of dollars'" worth of crypto from thousands of investors. The SEC said Genesis lacked enough liquid assets to meet withdrawal costs a year into the program leaving investors dry, among other allegations. 

Genesis Global Holdco filed for bankruptcy protection in January 2022 after taking a financial hit following the collapses of crypto hedge fund Three Arrows Capital and crypto exchange FTX in 2022.