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Gemini Trust Company, the cryptocurrency exchange founded by billionaires Cameron and Tyler Winklevoss, will return $1.1 billion to clients who invested in its defunct loan program, New York regulators said on Wednesday.
Additionally, Gemini will pay a $37 million fine to the New York State Department of Financial Services (NYDFS) for “significant failures that threaten the safety and soundness of the company,” regulators said.
“Gemini failed to conduct due diligence on an unregulated third party and was subsequently accused of widespread fraud, hurting Earn's clients who were suddenly unable to access their assets after Genesis Global Capital was exposed,” Superintendent Adrienne A. Harris said in a statement. To financial collapse.
Gemini's Earn program, which was offered in partnership with cryptocurrency lender Genesis Global Capital, was shut down during the November 2022 cryptocurrency market crash. The turmoil caused Genesis to file for bankruptcy, and led to extensive lawsuits between Genesis, Gemini, and Genesis' parent company . Digital Currency Group (DCG).
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A man walks past the logo of Gemini Trust, a digital currency exchange and custody company, during the Bitcoin 2022 conference in Miami Beach, Florida, US on April 6, 2022.
New York regulators say Gemini allowed customers to lend cryptocurrencies to Genesis, an “unregulated third party unlicensed by the Department.” Genesis then took those assets and lent them to its counterparties.
Earn's clients were promised interest payments, but lost their money when Genesis defaulted on nearly $1 billion in loans in November 2022.
Genesis declared bankruptcy two months later, leaving more than 200,000 Earn customers unable to access their digital currency.
The settlement means Gemini's Earn customers may soon be able to access these funds.
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Tyler and Cameron Winklevoss founded Gemini Trust Company in 2014. (Stephanie Keenan/Getty Images for Hauser & Wirth/Getty Images)
NYDFS said on Wednesday that it reserves the right to take further action against Gemini if the company does not fulfill its obligation to return at least $1.1 billion to customers following the Genesis bankruptcy decision. Gemini has pledged to contribute $40 million to end Genesis' bankruptcy in order to benefit Earn's customers, the regulator said.
“Today’s settlement is a win for Earn’s clients, who have rights to the assets they have entrusted to Gemini.” Harris said.
The Winklevoss twins — who own and operate Gemini — famously sued Meta CEO Mark Zuckerberg during Facebook's early days.
Gemini responded to the NYDFS announcement in a post on X, the platform formerly known as Twitter.
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Representations of the cryptocurrencies Bitcoin, Ethereum, and DogeCoin are placed on a PC motherboard in this illustration taken on June 29, 2021. (Reuters/Dado Rovik/Archive Photo/Reuters Photos)
“Today, we are pleased to announce that we have finally reached an in-principle settlement with Genesis and other creditors in the Genesis bankruptcy case that, if approved by the bankruptcy court, will result in all Earn users receiving 100% of their digital assets back. Nice.” Gemini said.
The company said that if the settlement is approved, it would return more than $1.8 billion in value to customers at today's cryptocurrency prices.
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“Looking ahead, if the Bankruptcy Court approves the tentative settlement announced today, Earn users can expect to receive approximately 97% of their in-kind assets within approximately two months. They can expect to receive the balance of their assets within the next 12 months said Gemini.
Gemini added that the bankruptcy court process required to approve the settlement could take up to two months to complete.
Reuters contributed to this report.
