The New York Department of Financial Services (NYDFS) has launched an investigation into cryptocurrency exchange Gemini for allegedly misleading its 340,000 Earn users into believing that their assets were FDIC-insured.
The program allowed users to earn up to 7.4% APY on their holdings, but abruptly shut down after the platform’s partner, Genesis, halted withdrawals and filed for bankruptcy.
NYDFS began investigating Gemini for possibly violating federal laws that forbid anyone from “implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance.”
Gemini previously revealed that while deposits at outside banks are protected, their own products are not FDIC-insured.
Former senior attorney at the FDIC, Todd Phillips, agreed that the communication between the crypto platform and its users could indeed cause some sort of misunderstanding: “Is it skeezy? For sure. Is it illegal? I don’t know. I can’t really say.”
Gemini and Genesis introduced the Earn program in 2021, and it quickly gained nearly 350,000 users in the following years. However, the FTX crash crippled Genesis’ operations and the mutual offering, freezing all assets held by Earn users.
