By
Steve Muchoki
April 9th, 2024
Ever since the fallout with the Earn Program, Gemini has been the center of scrutiny for both regulatory bodies and crypto customers.
New York State’s Department for Financial Services has begun an investigation of cryptocurrency exchange Gemini after the firm’s assertions over assets in its Earn Lending Program.
The Department of Financial Services supervises companies that come under the State’s BitLicense regime. According to a January 30th report from Axios, the New York State agency that manages Gemini was scrutinizing several reports that said that users thought their assets in Earn accounts were safeguarded by the Federal Deposit Insurance Corporation. The administrative body already has a history of rolling cease and desist orders to five crypto companies that had previously made equivalent claims, one of them being the now-fallen FTX US.
It is, however, uncertain as to why Gemini would disobey the federal rules. According to a few allegations from Gemini’s customers, it was assured that FDIC was instrumental in protecting the Earn products instead of another financial establishment that is otherwise liable for such insurance.
Under strict rules from the Federal Deposit Insurance Act, individuals are forbidden from imposing or indicating that an uninsured product is FDIC-insured or from deliberately distorting the extent and manner of deposit insurance.
As the cryptocurrency marketplace plunged last year, Gemini’s Earn clients persistently inquired about the safety of their assets. Gemini’s immediate responses indicated an underlined association with the Federal Deposit Insurance Corporation.
Around 350,000 Earn Clients have their assets worth $1 Billion frozen on the exchange. The retrieval of the tokens for which is now uncertain. Another company, which is also Gemini’s partner firm called Genesis, is now bankrupt. Both firms are suffering Securities and Exchange Commission allegations for promising unregistered securities via Earn.
The New York State agency that regulates Gemini is investigating the firm. According to an agency spokesperson, not much information can be given out as the investigation is still underway. Gemini stopped withdrawal in November last year, quoting unforeseen market disruption. The firm consequently filed for Chapter 11 bankruptcy in January.
Ever since the fallout with the Earn Program, Gemini has been the center of scrutiny for both regulatory bodies and crypto customers.
Cameron Winklevoss has argued that Barry Silbert, who is the Chief Executive Officer of Genesis’s parent unit, Digital Currency Group, was accountable for defrauding more than three hundred thousand users.
Gemini’s conversation about FDIC insurance seemed to refer to the firm’s deposits at external banks, and not its products. However, customers claim that the distinction wasn’t neatly explained. Moreover, the safety claims relate to its stablecoin GUSD- but not the yield-bearing Earn product itself.