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New York DFS Announces Settlement With Gemini Trust

The New York State Department of Financial Services (DFS) said Wednesday (Feb. 28) that Gemini Trust Company has agreed to return at least $1.1 billion to customers of its Gemini Earn Program.

The decision comes in response to Gemini’s failure to conduct due diligence, the DFS said in a Wednesday press release.

“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,” DFS Superintendent Adrienne A. Harris said in the release.

Gemini Trust Company said in a Wednesday post on X (formerly Twitter) that it thanked the DFS for its role in a settlement in principle that it reached with Genesis and other creditors in the Genesis bankruptcy. The settlement is subject to approval by the bankruptcy court.

“If approved, we will be returning over $1.8 billion in value (at today’s prices) — $700 million more than when Genesis halted withdrawals on November 16, 2022,” Gemini Trust Company said in the post.

Gemini will contribute $40 million to the Genesis Global Capital (GGC) bankruptcy proceeding to benefit Earn customers, according to the DFS press release. In addition, Gemini will pay a $37 million penalty to DFS for multiple compliance failures that threatened the company’s safety and soundness. 

The Earn Program, launched in February 2021, allowed Gemini customers to loan their virtual currency to GGC, an unregulated third party not licensed by DFS, the release said. GGC defaulted on approximately $1 billion worth of loans made by Earn customers, leading to a financial meltdown and subsequent bankruptcy declaration.

Gemini’s lack of due diligence on GGC, as well as its failure to adequately monitor the third party and maintain adequate reserves, caused significant harm to over 200,000 Earn customers, per the release.

The Department’s investigation also uncovered unsafe and unsound practices by Gemini, including an affiliate collecting excessive fees from customers, weakening the company’s financial condition, according to the release. 

As part of the settlement, Gemini has committed to ensuring the full recovery of virtual currency for Earn customers through the bankruptcy process, the release said. Failure to fulfill this commitment could result in further action by DFS.