Winklevoss Twin-owned cryptocurrency exchange Gemini has agreed to return 100% of customer funds lost from the implosion of the company’s staking platform Earn.
Through Earn, users were able to generate interest on their crypto by lending it to Gemini’s unregulated Earn partner Genesis, who would then use the crypto for investment purposes.
However, Genesis defaulted on approximately $1 billion worth of loans in November 2022, leaving over 200,000 Earn customers out of pocket.
A New York State Department of Financial Services (DFS) investigation determined that Gemini failed to conduct adequate due diligence on Genesis.
In addition to Gemini’s failures related to Earn, the DFS’s investigation revealed that Gemini “engaged in unsafe and unsound practices that ultimately threatened the financial health of the company”.
“We recognise the hardship presented by this lengthy process, and we are deeply appreciative of our customers’ patience and support along the way,” Gemini said in a statement.
Gemini has agreed to repay the lost crypto in full, at today’s market prices, meaning the group will pay out approximately $700 million more than their prices when Gemini halted withdrawals.
Gemini will also contribute $40 million to ongoing Genesis bankruptcy proceedings plus a $37 million fine to the New York State DFS for what Superintendent Adrienne A. Harris called “significant failures that threatened the safety and soundness of the company”.
The DFS can bring further charges if Gemini fails to return $1.1 billion to customers in full.
“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 Superintendent Harris. “Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini.”
Genesis, once one of the largest crypto trading desks in the business, was a victim of the big crypto shakeout of 2023, when a multitude of high-profile companies collapsed amid tumbling cryptocurrency prices.
It was owned by Digital Currency Group, the parent company of Grayscale Investments.
Genesis blamed the 2022 collapse of crypto-focused hedge fund Three Arrows Capital, and subsequent market turmoil, on its bankruptcy.