The New York State Department of Financial Services has opened an investigation against cryptocurrency exchange Gemini following the company’s allegations regarding funds in its Earn Lending program.
Firms that fall under the state’s BitLicense program are subject to supervision by the Department of Financial Services.
A statement (1) from Axios, dated Jan. 30, said the New York State agency that regulates Gemini is investigating various claims that consumers believed their funds in Earn accounts were protected by the FDIC.
The regulatory agency already has a track record of issuing rolling stop and desist rulings to five different crypto currency firms that have made such claims. One of these companies is the now defunct FTX US.
However, it should be clarified why Gemini chooses to defy the restrictions established by the federal government. According to a few claims made by Gemini’s customers, they were given the impression that the FDIC was responsible for making sure the products were profitable rather than another financial institution that would normally be responsible for this type of insurance.
Individuals are prohibited from imposing or implying that an unsecured product is FDIC-insured, as well as intentionally distorting the amount and method of deposit insurance in accordance with the strict requirements of the Federal Deposit Insurance Act.
Gemini’s Earn customers were concerned about the safety of their investments throughout the bear market in 2018 when the cryptocurrency market was on the decline. Immediate responses from Gemini suggested that it should emphasize a tie-up with the Federal Deposit Insurance Corporation.
About 350,000 EARN customers’ assets, totaling a billion dollars, are blocked on the exchange. There is a lot of skepticism about the possibility of recovering tokens for that.
Genesis overturned with Gemini
Another business, Gemini’s partner company called Genesis, recently declared bankruptcy. Both companies face claims from the SEC for using Earn to pledge unregistered securities.
The agency in New York state responsible for Gemini regulation is investigating the company. The company said it could not release significant information as the investigation is still ongoing.
Gemini had halted withdrawals in November last year, citing an unexpected market disruption. As a result, the company filed for Chapter 11 bankruptcy in January.
Gemini has been the focus of skepticism since the debacle at the Earn project, and the scrutiny is coming from regulatory agencies and cryptocurrency customers.
Cameron Winklevoss asserted that Barry Silbert, CEO of Genesis’ parent company Digital Currency Group, was responsible for defrauding more than 300,000 customers.
The debate at Gemini regarding FDIC insurance was about the company’s deposits with foreign banks rather than the products it offers for sale. On the other hand, customers insist that the distinction could have been presented more clearly and succinctly.
Additionally, security guarantees are provided to the company’s stablecoin GUSD, not the Earn product responsible for generating dividends.