NYDFS Probes Crypto Exchange Gemini Over FDIC Claims

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Key takeaways:

  • Gemini Earn has come under scrutiny recently after a report indicated users had been misled about FDIC coverage.
  • Users of Gemini Earn owe bankrupt Genesis a total of $765.9 million.

According to a Jan. 30 Axios report, Gemini is being investigated by the New York Department of Financial Services (NYDFS) for making statements about being protected by the Federal Deposit Insurance Corporation (FDIC).

Users of Gemini Earn owe bankrupt Genesis a total of $765.9 million. In addition, because they assumed the FDIC insured their assets, some of these users allege that Gemini misled them.

According to reports, Gemini claimed that the Gemini Dollar (GUSD) stablecoin was supported by bank deposit accounts covered by the FDIC. However, users complained in the report that Gemini’s marketing and messaging made it unclear that the FDIC did not insure Earn and other products.

While some users criticized Gemini’s communication as “misleading,” others believed their money was FDIC-insured when it was kept on Gemini Earn. This mismatch in comprehension emphasizes how crucial it is for Gemini to give its users appropriate information about its services.

Gemini apparently made many claims last year that the assets of consumers using its Earn product were secure because it was supported by the Federal Deposit Insurance Corporation (FDIC). It is illegal for a financial institution to indicate that a product that isn’t insured is FDIC-insured.

Even though Gemini’s contacts involving FDIC insurance were “skeezy,” Todd Phillips, a former senior counsel at the FDIC, told Axios that he wasn’t sure if they were actually unlawful. Businesses are not allowed to misrepresent the scope of FDIC coverage under federal law intentionally.

The FDIC and other authorities warned banks that cryptocurrency businesses’ misrepresentation of FDIC coverage posed a severe risk to conventional financial institutions. Due to the consequences of the failure of another exchange, FTX, Gemini ceased allowing withdrawals out of its Earn product in November of last year.

The platform is thought to have about $900 million frozen as a result. The halt was attributed to a similar freeze at the now-defunct cryptocurrency lender Genesis, where Gemini had put its clients’ money. Digital Currency Group, a crypto corporation, owns Genesis.

The Securities and Exchange Commission levied fines against Genesis and Gemini earlier this month for unregistered securities offers made through the Gemini Earn program.

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