No exchange seems to be free of regulatory actions these days. Gemini, the cryptocurrency exchange founded by the Winklevoss twins, might be about to return over $1.8 billion very soon.
The repayment is the result of a settlement with New York’s Department of Financial Services (DFS), which also charged Gemini with a $37 million fine. While the settlement has already been agreed by both parties, it is still up for approval by the bankruptcy court.
Gemini’s Earn program was halted back in November 2022, months after being accused by the Securities and Exchange Commission (SEC) of selling unregistered securities. The cancellation of the program followed Genesis’ filing for bankruptcy, which led to Gemini suing for over $1.6 billion.
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A Win for Gemini Users…
Gemini was quick to call the settlement a success when announcing it via a blog post, calling it a “successful resolution” for its users. Superintendent Adrienne A. Harris also referred to the settlement as “a win for Earn customers”, stating they had every right to the assets they had entrusted the exchange with.
Gemini’s repayment will not only account for the account’s dollar equivalent when the program was paused but also any appreciation. The settlement outlines asset restitution occurring in two phases once it is approved by the court.
Within 60 days, approximately 97% of funds will be returned across crypto assets like Bitcoin, depending on the coin invested by users. Over the next year, any pending balance will be paid back. However, as pointed out by Gemini, it could take up to two months for the bankruptcy court to approve the settlement.
…Not Necessarily for Gemini
The potential settlement marks the end of a saga that has been 15 months in development. During this time, Gemini has been closely communicating with the DFS to come up with a settlement, a process that the exchange “worked tirelessly” in.
The settlement also establishes that Gemini will contribute $40 million to the Genesis bankruptcy process, which would benefit Earn customers. This money will be directly taken from Gemini’s pocket, while the remaining money will come from Genesis’ bankruptcy proceeding.
Superintendent Harris also charged Gemini with a $37 million fine for what it called “significant failures that threatened the safety and soundness of the company”. According to Harris, Gemini’s failure to conduct due diligence would also be the reason for the harm Earn customers experience as a result of Genesis’ downfall.
Gemini’s Unsound Practices Hit The Wires
While the fine imposed on Gemini dwarfs in comparison to those of other exchanges, the DFS accusations in the announcement of the settlement might be a reason for the exchange to worry. Superintendent Harris was not only clear when blaming Gemini’s poor due diligence and its “failure to maintain adequate reserves” but also when highlighting the exchange’s “unsound practices”.
According to the DFS, its investigation revealed that Gemini would have paved the way for the events that affected its customers. The investigation showed that Gemini used an “unregulated affiliate” to collect “hundreds of millions of dollars in fees”.
This, in combination with “various management and compliance deficiencies”, would have weakened the exchange’s financial condition, eventually leading to its lack of reserves. The regulator also explained that while Gemini had been authorized in 2015 to operate, its third-party borrower was not.
Gemini is one of the latest exchanges to become the target of U.S. regulators, who have redoubled their efforts to crackdown on crypto platforms. The topic of cryptocurrency and DeFi have become a major topic of discussion, with some experts believing it could even swing the upcoming elections.
