Winklevoss-owned exchange Gemini is under investigation for references to FDIC insurance in its marketing.
Federal law prohibits anyone from making false claims about the FDIC insurance status of their financial product.
Gemini advertised Earn as a high-yield product. The exchange loaned almost $1 billion in user funds to now-bankrupt crypto lender Genesis.
340,000 Gemini Earn users lost almost $1 billion in deposits.
Regulators are putting increased pressure on risky crypto investment schemes. After a lawsuit by the SEC, crypto exchange Gemini has attracted the attention of New York regulators. Specifically, Gemini is under investigation for its claims about FDIC insurance.
On Monday, reports broke that Gemini is under investigation by the New York Department of Financial Services. According to Axios, Gemini misleadingly implied that user deposits were covered by Federal Deposit Insurance Corporation (FDIC).
Winklevoss-owned Gemini mentioned FDIC insurance in relation to its high-yield Gemini Earn program. The company did not state that Earn deposits benefited from FDIC insurance directly.
The company said its earn program was “at least in part” backed by money in FDIC-insured accounts. Now, the New York regulator is investigating these claims.
FDIC insurance provides coverage for deposits at banks if the banks or financial institutions go under. The scheme protects assets up to $250,000 for each depositor’s account.
Federal law prohibits any institution from implying in any way that deposits benefit from FDIC insurance if that is not the case. False claims about FDIC insurance can make depositors underestimate the risk of a financial instrument.
Gemini Earn Users Lost Almost $1 Billion
In reality, the Gemini Earn program was never under FDIC insurance. Instead, Gemini loaned almost $1 billion of customer deposits to Genesis, a crypto lender that had since gone bankrupt. This left some 340,000 Gemini Earn customers without access to their deposits.
Gemini is now fighting a public battle with Genesis over who is responsible for the losses. At the same time, both companies are under US Securities and Exchange Commission (SEC) investigation. The SEC claims that the deal between Genesis and Gemini amounted to an unlicensed securities offering.
Gemini was not the only exchange that made misleading statements about FDIC deposits. Former FTX US President Brett Harrison claimed that FTX deposits were FDIC insured. FTX US depositors lost access to their funds when the exchange went bankrupt.
On the Flipside
According to Axios, experts have conflicting views on whether Gemini broke any laws with regard to FDIC insurance.
Why You Should Care
More regulatory scrutiny could discourage other crypto companies from publishing misleading information in their materials.
Lawsuits, Policy, zz_index, zz_popular, zz_top, ZZZ Editors’ Picks, ZZZ Native, Federal Deposit Insurance Corporation (FDIC), Gemini, Genesis, New YorkRead More