New York regulator opens probe into Gemini

The New York Department of Financial Services (NYDFS) has opened an investigation into the Bitcoin exchange Gemini over claims concerning the safety of client assets. Axios reports this.

According to the publication, the platform repeatedly assured users that funds in its income product Earn were insured by the FDIC, which was not the case, and the claims violated U.S. federal law.

In November 2022, Gemini halted withdrawals of assets from the Earn program amid the FTX collapse.

According to the exchange, the cause was the debt of its partner — Genesis — amounting to $900 million. The crypto lender within Digital Currency Group, Barry Silbert filed for bankruptcy on January 20, 2023.

A number of Gemini customers told Axios that the exchange had claimed to insure deposits. Journalists found no direct evidence of this. They suggest that users were misled by the company’s assurances about the backing of the stablecoin BUSD with assets held in regulated custodian banks State Street, Signature, and Silvergate.

Financial institutions, like the NYDFS, declined to comment.

“It’s a bit sketchy, to be sure. I don’t know how illegal it is. I won’t claim,” said Todd Phillips, a former senior counsel at the FDIC, to Axios.

In December 2022, a group of investors filed a class-action lawsuit against Gemini accusing it of selling unregistered securities in the form of Earn. Later, similar claims against the exchange were made by the U.S. Securities and Exchange Commission.

As reported, one of Gemini’s co-founders, Cameron Winklevoss, called for Silbert’s resignation over the outstanding debt.