Cryptocurrency exchange Gemini announced that it will return more than $1 billion to customers of the Earn program under a regulatory settlement with the New York State Department of Financial Services (NYDFS).

Repay all customers' assets at current prices

On Feb. 28, Gemini Trust Company, founded by the Winklevoss brothers in 2014, announced that it had reached a settlement in principle with Genesis and other creditors in the company’s bankruptcy proceedings.

The settlement will allow Earn program customers to “recover 100% of their digital assets in physical form.”

The announcement further explains that, if approved by the bankruptcy court, users can expect to recover their assets on a 1:1 basis:

“If you lend one bitcoin in the Earn program, you will get one bitcoin back. This means that any appreciation in value of your asset since you lent it into the Earn program will also be yours.”

According to the cryptocurrency exchange, it will return more than $1.8 billion in assets at current prices. That’s $700 million more than the value of assets when Genesis stopped withdrawals about two years ago.

If the settlement is approved, users can expect to receive approximately 97% of their assets within 2 months. The remaining 3% of assets are expected to be returned within 12 months of approval.

Gemini clarified that the required bankruptcy court proceedings could take up to two months to complete. Furthermore, it said that in principle, the settlement is subject to binding final documents.

Genesis’s Agreement with the SEC

Gemini and Genesis Global Capital (GGC) jointly launched the Earn program. The program was launched in February 2021 and allows users to earn passive income through interest payments.

The interest is generated after users lend their digital assets to GGC through the Earn program, and the company then lends those assets to its peers.

Customers raised the alarm in November 2022 when Genesis called for a halt to withdrawals from the scheme. Two months later, in January 2023, the service was terminated permanently.

Soon after, the U.S. Securities and Exchange Commission (SEC) filed charges against the two companies, alleging that they subsequently offered unregistered securities through the Earn scheme.

Earlier this month, GGC reached a settlement with the SEC, ending a civil lawsuit against the company. Under the settlement, it agreed to pay a $21 million civil penalty, with the exact amount contingent on the company's repayments to customers and creditors.

Gemini fined for failing to perform due diligence duties

On Wednesday, New York State Department of Financial Services (NYDFS) superintendent Adrienne Harries announced that the cryptocurrency exchange will contribute $40 million to the Genesis Global Capital bankruptcy case.

In addition, Gemini will pay a $37 million fine to the NYDFS for its "significant failures" in protecting its customers that "threatened the security of the firm."

NYDFS argued that the company failed to conduct adequate due diligence on GGC and failed to "maintain adequate reserves throughout the life of Earn."

Harries said the settlement was a victory for Earn users. Customers will regain rights to the assets they entrusted to the exchange and failed to protect.

Harries said:

“Gemini’s failure to conduct due diligence on an unregulated third party led to what was later accused of a massive fraud, which harmed Earn customers who suddenly lost access to their assets following the financial crisis at Genesis Global Capital.”

Finally, NYDFS announced that it reserves the right to take further legal action if the company fails to fulfill its obligation to return at least $1.1 billion to Earn program clients as part of the settlement. #Gemini  #监管和解