The cryptocurrency exchange Gemini has agreed to give $50 million in digital assets to investors in its Gemini Earn program. This is part of a settlement with the New York Attorney General (NYAG), which was announced on Friday.
The settlement came after New York Attorney General Letitia James accused Gemini of misleading thousands of investors, including people in New York, about the risks of the Gemini Earn program. This program let Gemini customers loan their cryptocurrency to the now-bankrupt Genesis Global Capital, LLC, and offered up to 7.4 percent annual percentage yield (APY).
Gemini Agrees to $50 Million Settlement Over Misleading Investors
New York Attorney General Letitia James accused Gemini of misleading thousands of investors, including New Yorkers, about the risks associated with the Gemini Earn program. This program allowed Gemini customers to loan their cryptocurrency to the now-bankrupt Genesis Global Capital, LLC, offering up to 7.4 percent annual percentage yield (APY).
“Gemini marketed its Earn program as a way for investors to grow their money but actually lied and locked investors out of their accounts,” James said in a statement. “Today’s settlement will make defrauded investors whole and should remind cryptocurrency companies that deceiving investors is illegal and will not be tolerated by my office.”
The settlement ensures that all defrauded investors will fully recover the assets they invested in the Earn program but were unable to withdraw when the program collapsed. Additionally, Gemini is now prohibited from conducting any crypto lending programs in New York State.
The NYAG’s complaint, filed in October against Gemini, Genesis, and the crypto investment firm DCG, alleged that Gemini misled investors by repeatedly assuring them that the Earn program through Genesis was low risk, despite its actual risks. Furthermore, the NYAG accused DCG, Genesis, and two executives of concealing $1.1 billion in losses through a campaign of misstatements and omissions.
Gemini previously announced that Earn users would recover $2.18 billion of their crypto assets in-kind, meaning customers who lent one bitcoin would receive one bitcoin back. This distribution represents a 232% recovery from when withdrawals were halted in November 2022.
The final distributions for the Earn program will be available in customers’ accounts within seven days, according to Gemini’s statement on Friday. “We are also pleased to announce that in connection with the final Earn distribution, Gemini has entered into an agreement with the New York Attorney General (NYAG) to settle the lawsuit the NYAG brought against Gemini on October 19, 2023,” the statement read. “We are excited to deliver this full recovery to you and appreciate your ongoing patience and support throughout this process.”
Ongoing Legal Disputes and Settlements in the Crypto World
The news of Gemini’s settlement follows shortly after Genesis Global Trading reached an agreement with the New York Department of Financial Services (NYDFS). Genesis agreed to pay an $8 million penalty and cease its operations in New York. As part of the settlement, Genesis will surrender its BitLicense, which it has held since 2018.
Genesis’s bankruptcy has severely impacted the Gemini Earn program, leading to a series of lawsuits. Gemini has sued Digital Currency Group (DCG) and its CEO Barry Silbert, alleging fraud. Conversely, Genesis has sued DCG, seeking repayment of loans exceeding $600 million.
Amidst this ongoing dispute, U.S. regulatory bodies have stepped in. The SEC accused Genesis and Gemini of selling unregistered securities, while the New York Attorney General filed a lawsuit accusing DCG, Genesis, and Gemini of defrauding investors.
Court filings suggest that market disturbances, such as the collapse of Terraform Labs and Three Arrows Capital, led to Gemini making withdrawals from Genesis, contributing to a “run on the bank” scenario.
The legal battle between the two crypto companies has intensified since the collapse of FTX in November 2022, leading to a public feud involving the CEOs of both firms. The contention centers on the recovery of funds, with accusations of non-cooperation and threats of legal action flying back and forth.
Previously, Gemini took legal action against Genesis to access shares of the Grayscale Bitcoin Trust used as collateral for loans to Genesis through the Gemini Earn program. These shares are currently valued at roughly $1.6 billion.
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