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Gemini, a cryptocurrency exchange, has agreed with the New York Department of Financial Services (NYDFS) to reimburse customers of its discontinued lending program with at least $1.1 billion.
Additionally, the company will pay a fine of $37 million for what regulators described as "significant failures."
Settlement with NYDFS
Gemini's Earn program was halted amidst a cryptocurrency market crash in November 2022. The exchange, co-founded by twins Tyler and Cameron Winklevoss, was embroiled in controversy as the NYDFS accused it of negligence in vetting a third-party entity, Genesis Global Capital, leading to substantial losses for Earn customers.
According to BBC, Adrienne Harris, Superintendent of NYDFS, highlighted Gemini's failure to conduct proper due diligence, which resulted in customers being unable to access their assets when Genesis Global Capital faced financial collapse. The settlement aims to rectify these shortcomings and ensure that affected customers receive restitution.
Repayment Plan
Gemini expressed its commitment to rectifying the situation, stating that it has been actively advocating for Earn users and seeking the return of their assets over the past 15 months. If approved, the company plans to return over $1.8 billion in value to customers, $700 million more than the assets frozen when Genesis halted withdrawals in November 2022.
Gemini also pledged to contribute $40 million to resolving Genesis' bankruptcy proceedings to benefit Earn customers.
Genesis Global Capital Partnership
The Earn program, operated in collaboration with cryptocurrency lender Genesis Global Capital, faced suspension in November 2022, followed by Genesis filing for bankruptcy. Subsequently, extensive litigation ensued between Genesis, Gemini, and Genesis' parent company, Digital Currency Group.
Gemini Earn customers have been unable to access their funds since late 2022. The settlement marks a significant step towards resolving this issue, bringing affected customers closer to recovering their funds.
Legal Challenges and Regulatory Scrutiny
Gemini, led by the Winklevoss twins, has faced legal challenges, notably their protracted legal battle with Facebook and its CEO, Mark Zuckerberg.
A Coindesk report states that the NYDFS has retained the authority to initiate legal action against Gemini if the company fails to reimburse the $1.1 billion following the resolution of the [Genesis] bankruptcy.
In January 2023, Gemini and Genesis were charged by US regulators for allegedly illegally selling crypto assets to hundreds of thousands of investors through the Earn program, which launched in 2021. The US Securities and Exchange Commission is overseeing the case.
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