On February 28, 2024 the New York State Department of Financial Services (NYDFS) and cryptocurrency exchange Gemini Trust Company, LLC (Gemini) entered into a consent order under which Gemini has committed to return at least $1.1 billion to customers of its Gemini Earn crypto investment program in the ongoing bankruptcy proceedings of related crypto firm Genesis Global Capital, LLC (GGC) (see Bankruptcy: Cryptocurrency Case Tracker: Genesis Global Holdco, LLC).

Under the consent order, Gemini will contribute $40 million to the GGC bankruptcy estate for the benefit of Earn program customers in coordination with the bankruptcy court proceedings in the Southern District of New York. Under the consent order, Gemini will also pay a $37 million fine to NYDFS for "significant" failures that NYDFS alleged threatened the safety and soundness of the company.

As part of the settlement, NYDFS has the right to bring further action against Gemini if it does not fulfill its obligation to return at least $1.1 billion to Earn program customers after the resolution of the GGC bankruptcy. Under the consent order, Gemini committed to working through the GGC bankruptcy process to ensure that Earn program customers make a full recovery of their virtual currency.

Gemini's Earn program, which was originally offered in partnership with crypto lender GGC in December 2020, was created to allow Gemini customers the chance to loan their crypto assets to GGC in exchange for earning interest. GGC allegedly collected billions of dollars in crypto assets from Earn program investors. The Earn program was halted by Gemini during the crypto market crash in November 2022, which resulted in GGC filing for bankruptcy and led to extensive litigation between GGC, Gemini, and GGC's parent company, Digital Currency Group (DCG).

On October 27, 2023 Gemini filed an adversary proceeding in the GGC bankruptcy court to recover over 60 million shares of the Grayscale Bitcoin Trust (GBTC) from GGC that were allegedly pledged as collateral to Gemini. On November 21, 2023, GGC brought an adversary proceeding in the GGC bankruptcy court against Gemini seeking to recover more than $689 million that customers of both companies withdrew during a "run on the bank" that caused GGC to collapse into bankruptcy.

According to an NYDFS press release, Gemini failed to conduct due diligence on GGC, which was later accused of massive fraud, harming Earn program customers who were suddenly unable to access their crypto assets after GGC experienced financial meltdown and entered bankruptcy proceedings.

On February 14, 2024, GGC received permission under an order from a US Bankruptcy court to sell approximately $1.6 billion in Grayscale cryptocurrency trust shares as part of its effort to repay creditors allowing the company to monetize its shares of Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Ethereum Classic Trust.

On February 9, 2024, the New York Attorney General (NYAG) filed an amended complaint in the Supreme Court of the State of New York, expanding its lawsuit against DCG, DCG CEO Barry Silbert, GGC, and others for alleged misrepresentations made to investors regarding the crypto investment program the NYAG called Gemini Earn, which the NYAG has alleged caused more than $3 billion in losses (see Legal Updates, NYAG Files Amended Complaint in Connection with Gemini Earn Crypto Investment Program.

On January 12, 2023, the SEC filed a complaint in the US District Court for the Southern District of New York against GGC and Gemini alleging that they violated federal securities laws by engaging in the unregistered offer and sale of securities to US retail investors. On January 31, 2024, GGC filed a settlement agreement relating to the SEC complaint in its bankruptcy proceedings (see Legal Update: Updated: SEC Charges Crypto Firms Genesis and Gemini with Unregistered Securities Offering for Crypto Lending Program).

On June 2, 2022, the CFTC filed a complaint in the US District Court for the Southern District of New York against Gemini for allegedly making false or misleading statements of material fact, or omitting material facts, to CFTC staff in connection with the evaluation of the self-certification of its bitcoin futures contract offering (see Legal Update, Digital Asset Platforms Binance and Gemini Face New Legal and Regulatory Challenges). The CFTC case against Gemini is ongoing with a status conference on March 28, 2024 to set a trial date.