Cryptocurrency exchange Gemini is reportedly being investigated by the New York Department of Financial Services over claims the firm made regarding assets from its Earn lending program.
According to a January 30 news from Axios, the “New York state agency that regulates Gemini” – the Department of Financial Services handles companies that fall under the states’ BitLicense regime, including crypto exchange – was investigating following reports from many users that they believed the assets in their earn accounts had been protected by the Federal Deposit Insurance Corporation, or FDIC. The government agency previously issued cease and desist orders to five crypto companies making similar claims, including FTX US.
It is unclear whether Gemini may have violated federal law because some clients appear to have implied that the FDIC protected earn products rather than assets held at financial institutions subject to such insurance. Under the Federal Deposit Insurance Act, individuals are prohibited from “representing or implying that an uninsured product is FDIC insured or knowingly misrepresenting the scope and form of deposit insurance.”
Genesis, the cryptocurrency lender responsible for operating the Earn program in partnership with Gemini, halted withdrawals in November 2022, citing “unprecedented market turmoil.” The firm subsequently filed for Chapter 11 bankruptcy in January. News reports at the time suggested that up to $900 million in funds from users of the Earn program could have been blocked.
Since the fallout from the Earn program, Gemini has been in the crosshairs of both regulators and cryptocurrency users. In January, the US Securities and Exchange Commission accused the exchange of offering unregistered securities through Earn, while a group of investors filed a lawsuit against Gemini founders Tyler and Cameron Winklevoss in December, alleging fraud. .
Cameron Winklevoss has claimed on social media that Digital Currency Group CEO Barry Silbert – DCG is the parent company of Genesis -, as well as Genesis, were responsible for defrauding more than 340,000 users of Gemini’s Earn program. According to the Gemini co-founder, Silbert, DCG and Genesis orchestrated “a carefully crafted campaign of lies” aimed at covering up the lending company’s lack of capitalization.
Cointelegraph contacted the New York Department of Financial Services, but did not hear back at press time.
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