Gemini Trust, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, has reached a settlement with the New York Department of Financial Services (NYDFS) to return $1.1 billion to customers of its now-closed lending program. The settlement also includes a $37 million fine imposed on Gemini for significant failures that jeopardized the company’s stability and security.
Gemini, led by the Winklevoss twins, who are famously known for their legal battle with Mark Zuckerberg over the creation of Facebook, will be obligated to fulfill its obligations as per the settlement. The NYDFS retains the right to take further action against Gemini if the company fails to meet its commitments.
Gemini’s lending program, known as Gemini Earn, marketed itself as a low-risk investment opportunity where customers could lend their crypto assets to Genesis Global Capital (GGC) and earn interest payments of up to 8%. However, the lending program faced challenges when GGC suspended withdrawals in November 2022, resulting in a loss of value for customers.
In response to the settlement, Gemini announced in a blog post that customers of Gemini Earn would receive 100% of their digital assets back, along with any appreciation in value. The exchange estimates that it will return over $1.8 billion in value to its customers, which is $700 million more than the amount when GGC halted withdrawals.
The collapse of FTX, another prominent crypto exchange, played a significant role in the market downturn that affected Gemini’s lending program. FTX co-founder Sam Bankman-Fried was convicted in November on multiple counts of fraud and conspiracy related to the downfall of the company. Bankman-Fried’s lawyers recently recommended a prison sentence between five and six-and-a-half years, with a maximum possible sentence of 110 years.
While the settlement with NYDFS resolves one legal issue for Gemini, the exchange still faces a separate lawsuit filed by New York’s attorney general. The lawsuit, filed in October, accuses Gemini, GGC, and Digital Currency Group (the parent company of GGC) of deceiving investors and concealing losses exceeding $1 billion.
Gemini’s commitment to returning customer funds and the additional appreciation in value demonstrates its efforts to rectify the situation and regain trust. However, the pending lawsuit highlights the ongoing legal challenges the exchange must address in the future. As the cryptocurrency industry continues to evolve, regulatory scrutiny and investor protection remain crucial factors for exchanges like Gemini to navigate successfully.
