NYDFS Probes Gemini Over Claims Concerning the Earn Program (Report)

The New York Department of Financial Services reportedly launched an investigation against Gemini, alleging that the cryptocurrency exchange told its 340,000 Earn users they were FDIC-protected.

The program, which provided clients up to 7.4% APY on their holdings, went down after the platform’s partner – Genesis – halted withdrawals and filed for bankruptcy.

The NYDFS Targets Gemini

As reported by Axios, New York’s regulator started investigating the Winklevoss-led trading venue for misleading Earn customers that their assets were backed by the Federal Deposit Insurance Corporation. Federal law forbids anyone from “implying that an uninsured product is FDIC–insured or from knowingly misrepresenting the extent and manner of deposit insurance.”

Gemini previously revealed that the firm’s deposits at outside banks are protected and not its own products. However, Earn clients said they could not find the difference, hence the confusion. Todd Phillips – a former senior attorney at the FDIC – agreed that the communication between the crypto platform and its users could indeed cause some sort of misunderstanding:

“Is it skeezy? For sure. Is it illegal? I don’t know. I can’t really say.”

Gemini and Genesis introduced the Earn program in 2021, which amassed nearly 350,000 users in the following years. The FTX crash, though, crippled Genesis’ operations and the mutual offering. Gemini Earn investors had their assets frozen, but the exchange vowed to use “every tool available” to refund them. It set a creditors’ committee to help with the task and maintained that Genesis owes approximately $900 million to users. 

It remains uncertain how the latter will repay its debt since it filed for Chapter 11 bankruptcy protection earlier this month.

Gemini’s Other Problems

The US SEC recently filed a complaint against Gemini and Genesis for allegedly selling unregistered securities to retail investors in the States. Chairman Gary Gensler said the charge’s goal is to show that cryptocurrency lending platforms and intermediaries must abide by the American laws. 

Gurbir S. Grewal – Director of the SEC’s Division of Enforcement – believes the recent termination of the Earn program highlights the necessity for such investigations. He also urged affected users to contact the SEC’s Whistleblower Program.

Gemini has also put its name on the long list of crypto companies that dismissed staff for various reasons, with the market downturn being the primary one. It recently laid off 10% of its total workforce, citing unfavorable macroeconomic factors and “unprecedented fraud” within the industry.

The firm made another 10% staff reduction in July 2022.