Winklevoss twins’ Gemini to return $1.1B to customers caught in doomed ‘Earn’ product fiasco
The Winklevoss twins’ cryptocurrency firm Gemini has agreed to return at least $1.1 billion to customers of its doomed “Earn” lending program – and pay a $37 million fine for “significant” compliance failures as part of a settlement with regulators on Wednesday.
Gemini – which was founded by the twins after their famous feud with Mark Zuckerberg over who invented Facebook – failed to “fully vet or sufficiently monitor” Genesis, the now-bankrupt lending partner for Gemini Earn, according to the New York State Department of Financial Services.
The Earn program teased up to 8% interest on customers’ crypto deposits, only to collapse when Genesis was caught up in the meltdown of disgraced fraudster Sam Bankman-Fried’s FTX empire and left unable to meet withdrawals in November 2022.
Since then, more than 200,000 Earn customers – including nearly 30,000 New Yorkers – have been unable to access their money.
The state regulator said it had determined that Gemini “engaged in unsafe and unsound practices that ultimately threatened the financial health of the company.”
“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,” NYSDFS Superintendent Adrienne Harris said in a statement. “
Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini.”
In the midst of the crisis, an unregulated affiliate called Gemini Liquidity “collected hundreds of millions of dollars in fees from Gemini customers that otherwise could have gone to Gemini, substantially weakening Gemini’s financial condition.”
The regulator also said it “further identified various management and compliance deficiencies” but did not elaborate.
As part of the settlement, Gemini also agreed to contribute $40 million to Genesis’s bankruptcy proceedings for the benefit of Earn customers.
The NYSDFS said it “has the right to bring further action against Gemini if the company does not fulfill its obligation to return at least $1.1 billion to Earn customers after the resolution of the [Genesis] bankruptcy.”
In a lengthy statement posted on X, Gemini said the settlement would “result in all Earn users receiving 100% of their digital assets back in kind” within the next 12 months.
The company added that the settlement is subject to definitive documentation and that the bankruptcy court approval process could take as long as two months.
“Gemini thanks the New York Department of Financial Services (DFS) for its role in this settlement, which delivers a coin-for-coin recovery for Earn users,” the company said.
The Post reached out to Gemini for further comment.
Last October, New York Attorney General Letitia James sued Gemini and Genesis parent Digital Currency Group for defrauding Earn customers out of their money and blasted both as “bad actors.”
The lawsuit was filed weeks after The Post reported that Gemini had secretly pulled $282 million in cryptocurrency from Genesis on Aug. 9, 2022 – well before Genesis’s collapse.
The twins later claimed the move was done for the benefit of customers.
Earn customers were nevertheless left outraged by the twins’ actions, with one scorned investor telling The Post, “there’s no good way that Gemini can spin this.”
The SEC is also suing Gemini and Genesis in a separate case alleging the Earn program was an unregistered security.
Earn’s implosion was a major setback for the Winklevoss twins and their ambition to be a major player in the sector.
Gemini had staked its reputation on the premise that it was a trustworthy operator in a freewheeling, largely unregulated crypto industry.
