Gemini has agreed to terms with authorities to return at least $1.1 billion in settlements to customers.
Crypto exchange Gemini has announced that it has reached a settlement agreement with the New York State Department of Financial Services (NYDFS). The settlement agreement with NYSDF states that Gemini will return approximately $1.1 billion to customers enrolled in the Gemini Earn program.
In addition to paying the settlement amount, Gemini will also pay $37 million in penalties for various regulatory compliance violations, as highlighted by Adrienne A. Harris, the Superintendent of the NYDFS.
In a statement made on February 29, 2024, Harris said that paying the penalty is the consequence of threatening the company’s safety and soundness.
Gemini aims to recover 97% of the assets within two months and the remaining balance within 12 months.
Pending approval from the bankruptcy court, Gemini anticipates that users of the Earn program will be fully reimbursed for their cryptocurrency assets and additional appreciation.
If the plan is accepted, users can expect to receive back over $1.8 billion based on current prices. This amount is $700 million more than Genesis paused withdrawals on November 16, 2022.
In a post on their X (formerly Twitter) social media profile, the Earn program reported that they were pleased to announce a settlement finally being reached with Genesis and other creditors in the Genesis bankruptcy case.
The statement read:” Today, we are pleased to announce that we have finally reached a settlement in principle with Genesis and other creditors in the Genesis Bankruptcy that will if approved by the Bankruptcy Court, result in all Earn users receiving 100% of their digital assets back.”
History of Legal Dispute between Genesis and Gemini
Genesis and Gemini have been previously embroiled in a legal dispute in which bankrupt crypto lender Genesis Global Capital filed a lawsuit against Gemini, seeking to recover $689 million in preferential transfers.
Genesis alleged that Gemini withdrew this sum within 90 days before Genesis filed for bankruptcy in January 2023, which caused severe financial consequences to other creditors.
The CEOs of both companies at the time heavily criticized each other’s actions, exacerbating tensions. The lawsuit followed Gemini’s legal action against Genesis regarding the fate of Grayscale Bitcoin Trust shares used as collateral.
Genesis’ bankruptcy sparked further legal battles, including Gemini’s fraud lawsuit against Digital Currency Group, Genesis’ parent company.
Terms of the agreement between the two firms
As part of the agreement, Harris revealed that Gemini had agreed to contribute $40 million to the Genesis Global Capital (GGC) bankruptcy to benefit Earn customers.
Harris highlighted that Gemini failed to conduct due diligence on an unregulated third party, later accused of massive fraud, which harmed Earn customers and made them unable to access their assets after Genesis Global Capital’s financial meltdown.
Harris emphasized that Today’s settlement is a victory for Earn customers, asserting their right to the assets entrusted to Gemini.
She cautioned that the NYDFS could pursue further action against Gemini if it fails to meet its obligations. Gemini launched the Earn program in February 2021, where customers loaned their coins to GGC, which NYDFS did not license.
GGC then loaned those assets to counterparties, with Earn customers receiving interest payments. However, GGC’s bankruptcy in January 2023 led to defaults on approximately $1 billion worth of loans made by Earn customers.
Genesis filed for bankruptcy in January 2023 after suffering losses from failed firms like Three Arrows Capital and the FTX collapse. The broader market downturn caused by these events, coupled with the volatile nature of crypto, ultimately led to their financial downfall.
NYDFS accused Gemini of inadequate vetting and monitoring of GGC’s conduct throughout the Earn program’s lifespan.
