Crypto exchange Gemini is being investigated by the New York Department of Financial Services (NYDFS) for making false claims that its Gemini Earn program was purportedly insured with the Federal Deposit Insurance Corporation (FDIC), an Axios report said on Monday.
In the aftermath of FTX’s collapse, crypto lending platform Genesis Global Capital which had partnered with Gemini to offer yield-bearing Gemini Earn program in December 2022, had stated its exposure to FTX and Alameda Research and subsequently suspended withdrawals for the Earn program. During the intervening period, Gemini reportedly assured investors of the Earn program that their investments are safe. However, after Genesis halted withdrawals, Gemini too suspended withdrawals from the Earn accounts.
“As the cryptocurrency market imploded last year, Gemini Earn customers repeatedly asked the company if their assets were safe. Some of Gemini’s responses, reviewed by Axios, emphasized connections to the Federal Deposit Insurance Corporation,” the Axios report says.
Early this month, SEC filed complaints against Gemini and Genesis for offering unregistered securities through their Earn program. Last week, law firm Pomerantz filed a class action lawsuit against Gemini for defrauding Earn investors by making false promises and misrepresentations.
“All fiat currency held by Gemini to redeem your GUSD is held by our partner financial institutions in a secure account and is eligible for FDIC insurance,” Gemini reportedly said to an investor who had asked about the safety of his GUSD holdings.
The Axios reports say, “Federal law prohibits anyone from “implying that an uninsured product is FDIC–insured or from knowingly misrepresenting the extent and manner of deposit insurance.”