Following the company's allegations concerning the funds held in its Earn Lending Program, the New York State Department of Financial Services has initiated an inquiry against the crypto currency exchange Gemini.
Companies that fall within the purview of the State's BitLicense scheme are subject to the oversight of the Department of Financial Services.
A report (1) from Axios dated the 30th of January stated that the New York State agency that regulates Gemini was looking into various claims that claimed 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 judgments to five different crypto currency firms that had previously made such claims. One of these companies was the now-defunct FTX US.
However, it needs to be clarified why Gemini would choose to contravene the restrictions established by the federal government. According to a few claims made by Gemini's clients, they were given the impression that the FDIC was responsible for ensuring the Earn products rather than another financial institution, which would generally be accountable for insurance of this kind.
Individuals are prohibited from imposing or implying that an unsecured product is FDIC-insured, as well as from intentionally distorting the extent and method of deposit insurance per the stringent requirements of the Federal Deposit Insurance Act.
Gemini's Earn customers were concerned about the security of their investments throughout the bear market that occurred in 2018 while the crypto currency market was in freefall. The prompt replies provided by Gemini suggested the presence of an emphasis on a link with the Federal Deposit Insurance Corporation.
The assets of around 350,000 Earn customers, totaling one billion dollars, have been blocked on the exchange. There is a lot of doubt about the possibility of recovering the tokens for which.
Genesis Toppled Along With Gemini
Another business, a partner company of Gemini's known as Genesis, has recently declared bankruptcy. Both companies are facing claims from the SEC over using Earn to promise unregistered securities.
The agency in New York State responsible for Gemini regulation is investigating the company. Since the investigation is still ongoing, the agency has stated that it cannot disclose significant material.
Gemini suspended withdrawals in November of the previous year, citing unanticipated market disruption. Consequently, the company initiated a Chapter 11 bankruptcy proceeding in January.
Gemini has been the focus of suspicion ever since the fiasco with the Earn Program, and this scrutiny comes from regulatory organizations and crypto currency clients.
Cameron Winklevoss asserted that Barry Silbert, who serves as the CEO of the Digital Currency Group, the parent company of Genesis, is responsible for the fraud perpetrated on more than 300,000 customers.
The discussion at Gemini concerning FDIC insurance pertains to the company's deposits at external banks rather than the items it offers for sale. On the other hand, customers assert that the differentiation could have been presented more clearly and concisely.
In addition, the safety assurances are to the company's stablecoin GUSD and not the Earn product, which is responsible for producing dividends.