KEY POINTS
- Earn users can receive their assets within about two months if the bankruptcy court approves the settlement
- The NYDFS said Gemini has also agreed to pay a $37 million fine for its own failures
- Gemini said it will contribute $40 million toward recovering the assets of Earn users
Cryptocurrency exchange Gemini will return at least $1.1 billion in digital assets to users of its defunct Earn lending program, the New York State Department of Financial Services (NYDFS) said.
The New York-based exchange also agreed to pay a fine of $37 million to the state regulator "for significant failures that threatened the safety and soundness of the company." As part of the settlement agreement, the NYDFS "has the right to bring further action against Gemini if the company does not fulfill its obligation to return at least $1.1 billion to Earn customers," the regulator noted.
Gemini has also provided an update to Earn customers, saying that if the court that handles the Chapter 11 bankruptcy of financial services company Genesis Global Capital (GGC) approves the settlement, "Earn users can expect to receive approximately 97% of their assets in kind within about two months." The remaining asset balance should be received within the next 12 months, the exchange added.
Under Gemini's Earn program, customers were allowed to loan their digital assets to Genesis, which, according to the NYDFS, was "an unregulated third party" that did not receive appropriate licensing from the department.
Genesis defaulted on approximately $1 billion worth of loans made by Earn customers in November 2022. It filed for bankruptcy two months later.
"Gemini failed to conduct due diligence on an unregulated third party, later accused of massive fraud, harming Earn customers who were suddenly unable to access their assets after Genesis Global Capital experienced a financial meltdown," said NYDFS Superintendent Adrienne A. Harris.
Gemini, on the other hand, said it "worked tirelessly over the past 15 months to advocate for Earn users and seek the return of their assets." It added that it will contribute $40 million toward Earn users' fund recovery.
The downfall of Genesis led to a fierce legal battle as Gemini also sought to hold Genesis' parent company Digital Currency Group (DCG) liable for the issues that Gemini's Earn users suffered through. The crypto exchange alleged that DCG and its CEO Barry Silbert misrepresented Genesis' financials during a meeting.
DCG filed a motion last year, seeking to junk Gemini's case against it, saying it had "virtually nothing to do" with Gemini's Earn program. DCG added that Gemini was only trying to "deflect blame" for mismanaging the program.
