Many Gemini Earn users reportedly claimed assets in their accounts had been protected by the Federal Deposit Insurance Corporation.
New York State’s Department of Financial Services is reportedly investigating cryptocurrency exchange Gemini over claims the firm made in regards to assets under its Earn lending program.
According to a Jan. 30 report from Axios, the “New York State agency that regulates Gemini” — the Department of Financial Services handles firms falling under the states’ BitLicense regime, including the crypto exchange — was investigating following reports many users believed 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 firms making similar claims, including FTX US.
It’s unclear if Gemini may have violated federal laws due to some customers seemingly taking away that the FDIC protected Earn products rather than assets held at financial institutions that are 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 from knowingly misrepresenting the extent and manner of deposit insurance.”
Genesis, the crypto 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. Reports at the time suggested up to $900 million in Earn user funds could have been locked.
Since the fallout with the Earn program, Gemini has been the target of regulators and crypto users alike. In January, the U.S. Securities and Exchange Commission charged the exchange with offering unregistered securities through Earn, while a group of investors filed a lawsuit against Gemini founders Tyler and Cameron Winklevoss in December, alleging fraud.
Related: New York State issues guidance for banks seeking to engage in activities with crypto
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 in 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 firm’s lack of capitalization.
Cointelegraph reached out to the New York Department of Financial Services, but did not receive a response at the time of publication.
