Superintendent of NYDFS Secures $1.1 Billion Pledge from Gemini and Imposes $37 Million Fine

Superintendent Adrienne A. Harris of the New York State Department of Financial Services (DFS) has announced a major settlement with Gemini Trust Company, LLC ("Gemini"). The agreement stipulates Gemini's commitment to returning at least $1.1 billion to customers affected by the Gemini Earn Program ("Earn") through the Genesis Global Capital, LLC ("GGC") bankruptcy proceedings.

To fulfill this commitment, Gemini will contribute $40 million to the GGC bankruptcy, benefiting Earn customers in collaboration with the Bankruptcy Court. In addition, Gemini will pay a $37 million fine to the DFS, addressing significant lapses that jeopardized the safety and soundness of the company.

As part of the settlement terms, the DFS retains the right to take further action against Gemini if the company fails to meet its obligation to return the pledged amount to Earn customers after the GGC bankruptcy resolution. Gemini pledges to actively engage in the bankruptcy process, ensuring Earn customers achieve a complete recovery of their virtual currency.

Superintendent Harris commented on Gemini's shortcomings, stating, "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. Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini."

The Earn program, initiated on February 1, 2021, allowed Gemini customers to lend their virtual currency to GGC, an unregulated third party not licensed by the DFS. GGC subsequently loaned these assets to its own counterparties, with Earn customers receiving interest payments. However, despite Gemini's public assurances, it was revealed that the company did not conduct adequate due diligence on GGC and failed to monitor it effectively. In November 2022, GGC defaulted on approximately $1 billion worth of loans, leading to its declaration of bankruptcy two months later.

Gemini's lapses not only caused monetary harm to over 200,000 Earn customers but also damaged its own reputation. Nearly 30,000 New Yorkers among these customers currently remain unable to access their virtual currency.

The DFS investigation further uncovered unsafe practices within Gemini, with its unregulated affiliate, Gemini Liquidity, LLC, collecting substantial fees that could have strengthened Gemini's financial condition. Various management and compliance deficiencies were also identified, highlighting the need for corrective measures.

This settlement marks a significant step towards accountability in the financial services sector, reinforcing the commitment of regulatory bodies to protect consumers and maintain the integrity of the industry.

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